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CONTROL  OF  THE  MARKET 

A 
Legal  Solution  of  the  Trust  Problem 


CONTROL  OF  THE  MARKET 

A 

LEGAL  SOLUTION  of  the  TRUST  PROBLEM 

BY 

BRUCE  WYM AN,  A.M.,LL.B. 

Professor  of  Law  in  Harvard  Universitt  and 
Lectdrxr  in  the  Department  of  Economics 


NEW  YORK 
MOFFAT,  YARD   AND   COMPANY 

1911 


T 


Copyright,  1911,  by 

BRUCE    WYMAN 

All  Eights  Eeserved 

Published,  October,  1911 


c? 


a 

h 
U 


CONTENTS 

CHAPTEB  PAGIl 

I.     Tendencies  Toward  State  Conteol    .         1 
II,     Fbeedom  fob  Faib  Competition    . 

III.  Types  of  Unpaib  Competition 

IV.  COEEOION   BY   LaBOB   XJnIONS    . 

V.     Pbessube  by  Tbade  Combinations 

VI.       CONTBACTS   IN   ReSTEAINT    OF   TeADE 
VII.      MODEBN    FOBMS    OF   COMBINATION      . 

VIII.     Businesses    Affected    with    a  Public 
Inteeest      ..... 


10 
36 
58 
88 
117 
142 


167 


IX.     Unfaie  Peactices  in  Public  Callings  190 

X.     Enfobcement     OF    THE     Anti-Teust 

Statutb 214 

XL     Relief  Against  Peedatoby  Competition  242 

XII.     Extent  of  State  Conteol    .         .         .  268 

Table  of  Cases  Discussed    .        .         .  279 


734172 


PREFACE 

I  HAVE  been  advocating  for  many  years  the 
regulation  of  the  trusts  by  law,  rather  than 
the  persistence  in  the  attempt  to  destroy 
by  law  these  aggregations  of  capital.  For  I 
have  come  to  believe  in  the  control  by  the 
State  of  all  businesses  which  have  outgrown 
the  regulation  of  competition.  I  do  not  mean 
by  this  that  the  State  should  undertake  to 
order  the  conduct  of  all  businesses,  which  it 
is  apparent  would  be  one  form  of  socialism. 
Regulation  of  this  extreme  sort  will  be  con- 
fined to  those  businesses  which  are  affected 
with  a  public  interest.  But  it  seems  certain 
that  other  businesses  than  those  now  within 
this  classification  will  eventually  be  brought 
within  it.  And  the  thesis  will  be  defended 
in  these  pages  that  all  businesses  which 
have  a  virtual  monopoly,  firmly  established 
in  the  nature  of  things,  are  so  affected  with 
a  public  interest  as  to  be  within  the  class 
of  callings  which  are  considered  public  em- 
ployments.    What  branches  of  industry  will 


▼i  PREFACE 

eventually  be  considered  of  such  public  im- 
portance as  to  be  included  within  the  cate- 
gory of  public  callings,  it  would  be  rash 
to  predict.  But  no  one  can  study  the 
authorities  on  this  subject  without  feeling 
their  great  potentialities.  In  private  busi- 
nesses, one  may  sell  or  not  as  one  pleases, 
manufacture  what  qualities  one  chooses,  de- 
mand any  price  that  can  be  gotten,  and  give 
any  rebates  that  are  advantageous.  It  is 
because  the  modern  trusts  are  carrying  on  a 
predatory  competition  under  the  cover  of 
this  law  that  we  have  the  trust  problem. 
All  this  time  in  public  businesses  one  must 
serve  all  that  apply  without  exclusive  condi- 
tions, provide  adequate  facilities  to  meet  all 
the  demands  of  the  consumer,  exact  only  rea- 
sonable charges  for  the  services  that  are  ren- 
dered, and  between  customers  under  similar 
circumstances  make  no  discriminations.  If 
this  law  might  be  enforced  against  the  trusts, 
perhaps  a  solution  of  the  problem  would  be 
found.  The  immediate  extension  of  this  coer- 
cive law  of  public  employment  to  cover  the  in- 
dustrial trusts,  I  have  been  urging  incidentally 
in  various  writings  for  some  time.  And  it  is 
fitting  that  I  should  acknowledge  in  this  place 
the   courtesy   of   the   Boston   Book    Co.,   in 


PREFACE  vii 

permitting  me  to  reprint  certain  articles 
of  mine  in  the  Green  Bag,  and  the  kindness 
of  Baker,  Voorhis  &  Co.,  in  allowing  me  to 
take  what  I  pleased  from  my  recent  treatise 
on  Public  Service  Corporations. 

B.  W. 


CHAPTER  I 

TENDENCIES  TOWAED   STATE  CONTROL 


It  has  been  remarked  many  times  that  our 
common  law,  by  which  we  are  so  largely 
governed,  may  be  relied  upon  to  meet,  by  the 
continual  development  of  its  fundamental 
principles,  the  complex  conditions  created 
by  the  constant  evolution  in  the  industrial 
organization.  This  continual  development  in 
the  common  law  is  largely  the  result  of  the 
progressive  changes  in  public  opinion.  The 
mere  talk  of  the  day  has  little  effect  upon  the 
making  of  the  law;  for  the  law,  as  established, 
has  too  much  inertia  to  be  thus  moved.  But 
the  seasoned  opinion  of  a  given  era  soon  be- 
comes the  law  of  that  period;  for  the  judges 
usually  have  the  same  general  ideas  as  other 
enlightened  persons.  Not  only  are  they  in- 
spired with  the  same  beliefs,  but  they  have 
the  power  to  insist  that  other  men  shall  act 
according  to  their  notions  of  social  justice. 
Whenever  the  mass  of  men  firmly  believe  that 


ft        THE  CONTROL  OF  THE  MARKET 

approximation  to  certain  ideals  is  necessary 
for  their  salvation,  these  policies  will  almost 
always  be  found  to  have  become  fundamental 
principles  of  the  law. 


II 

The  underlying  causes  of  most  of  the 
changes  in  the  law  are  really  economic.  Men 
suffer  from  the  conditions  of  the  time;  and 
they  look  to  the  law  to  save  them  from  their 
fate.  That  men  are  prone  to  hope  too  much 
from  changes  in  the  law  is  clear;  but  it  is 
none  the  less  true  that  they  generally  appeal 
to  it  as  to  a  higher  power.  The  current  be- 
lief in  all  times  is  that  if  almost  all  men 
could  be  compelled  to  act  as  the  great  ma- 
jority think  they  ought,  there  would  be  as 
near  an  approximation  to  perfection  at  any 
given  time  as  is  possible  in  that  period  of 
human  progress.  This  notion  has  been  the 
real  support  of  all  governments  which  have 
had  any  permanence  since  society  began;  for 
no  constituted  authority  lasts  long  which  is 
not  responsive  to  public  opinion  to  some 
degree. 

From  the  earliest  times  some  restraint 
has  been  exercised  over  all  lines  of  industry 


TENDENCIES  TOWARD  STATE  CONTROL     3 

which  are  of  vital  interest  to  the  public.  The 
establishment  of  the  peace,  the  protection  of 
the  weak  against  the  physical  violence  of  the 
strong,  is  a  fundamental  function  of  govern- 
ment; but  of  equal  importance  and  of  almost 
equal  antiquity  is  the  protection  of  the  com- 
mon people  against  the  greed  and  oppres- 
sion of  the  powerful.  This  is  what  public 
opinion  has  always  demanded  of  the  state, 
that  it  shall  protect  equally  against  physical 
violence  and  against  oppression  that  affects 
the  means  of  living.  We  get  as  much  protec- 
tion from  the  law  as  the  enlightened  persons 
of  a  given  time  believe  we  ought  to  have 
from  it — no  more,  no  less. 

The  modern  lawyer,  who  accepts  unre- 
servedly the  evolutionary  theory  of  the 
growth  of  the  law,  is  as  ready  as  those  of 
the  older  time,  who  believed  in  the  eternal 
principles  of  natural  justice,  to  begin  his 
investigation  of  a  legal  doctrine  in  the  earliest 
reports  of  adjudicated  cases.  A  view  of  the 
whole  course  of  our  law  upon  a  particular 
subject  is  as  necessary  now  for  those  who 
hope  at  most  to  predict  what  the  law  is  likely 
to  be  as  for  those  who  once  expected  to  dis- 
cover what  the  law  had  always  been  from 
time  immemorial.     The   eternal   conflict   be- 


4        THE  CONTROL  OF  THE  MARKET 

tween  competition  and  combination  is  always 
bringing  cases  to  the  courts  for  decision. 
Thus  we  may  know  from  age  to  age  what 
were  the  policies  which  were  currently  be- 
lieved in ;  and  so  we  may  predict,  with  more 
confidence,  what  the  law  will  be  in  the  future, 
knowing  what  its  course  has  been  in  the  past. 


ni 

The  irresistible  advances  of  the  modern 
competitive  system  gradually  worked  the 
destruction  of  the  mediseval  organization  of 
industry.  Great,  however,  as  was  this  change 
from  the  old  economic  theory  to  the  new,  it 
was  gradual,  and  it  was  never  complete. 
There  was  a  swing  of  the  pendulum.  General 
but  not  absolute  restriction  of  freedom  of 
trade  was  the  policy  of  the  Middle  Ages; 
general  freedom  of  trade  with  the  restriction 
of  certain  exceptional  occupations  has  become 
the  policy  of  modern  times.  Generally  speak- 
ing, a  state  of  free  competition  has  been  for 
several  centuries  now  considered  to  be  for  the 
best  interests  of  society;  and,  therefore,  in 
modern  times  almost  every  business  has  been 
opened  to  almost  every  man.  But  at  all  times 
in  economic  history,  both  restriction  and  free- 


TENDENCIES  TOWARD  STATE  CONTROL     5 

dom  are  to  be  found  in  the  law,  the  propor- 
tion, however,  changing  greatly.  In  one 
epoch  there  is  much  legal  limitation,  with 
little  freedom  left;  in  another  age  there  is 
almost  universal  competition,  with  some  little 
regulation  to  be  found.  And  the  rule  will 
generally  hold  true  that  the  more  the  natural 
laws  of  competition  regulate  service  and 
price,  the  less  the  State  need  interfere  in 
these  respects;  but,  conversely,  when  com- 
petition ceases  to  act  efficiently,  state  con- 
trol becomes  necessary. 

As  a  result  of  the  economic  evolution  from 
mediseval  times  to  the  present  day,  there  have 
come  into  being  in  the  last  generation  a  con- 
siderable number  of  employments  which  have 
gained,  if  not  a  legal  monopoly,  at  any  rate, 
as  a  result  of  circumstances,  a  virtual  monop- 
oly in  matters  of  public  necessity.  The  law 
is  the  only  protection  that  the  public  can  have 
in  a  situation  such  as  this,  where  there  is  no 
competition  among  the  sellers  to  operate  in 
its  favor.  So  much  has  our  philosophy  been 
permeated  with  the  theory  of  laissez  faire, 
which  was  but  lately  so  prominent  in  the 
policy  of  our  state,  that  the  admission  has 
been  made  with  much  hesitation  that  State 
control  is  ever  necessary.     But  the  modern 


6        THE  CONTROL  OF  THE  MARKET 

conclusion,  after  some  bitter  experience,  is 
that  freedom  can  be  allowed  only  where  con- 
ditions of  virtual  competition  prevail;  for 
where  there  is  monopoly  without  stern  re- 
strictions, there  is  always  great  mischief. 

It  is  almost  a  truism  that  the  spirit  of  the 
age  molds  its  law.  Those  who  make  the  laws 
are  members  of  the  community  and  share  its 
spirit.  The  age's  ideal  of  right  is  their  ideal, 
the  method  of  thought  about  justice  which 
is  prevalent  at  the  time  is  their  method  of 
thought,  too;  and  it  therefore  follows  that  in 
working  out  legal  problems,  the  lawmakers 
work  along  the  lines  prescribed  by  the  spirit 
of  the  age  in  which  they  live.  Nowhere  is 
the  influence  of  the  spirit  of  the  time  on  the 
common  law  more  evident  and  more  potent 
than  in  this  question  of  the  regulation  of 
business  dealings.  When  monopoly  prevails, 
the  people  call  upon  the  law  to  save  them. 
When  competition  is  the  usual  thing,  people 
speak  disparagingly  of  the  law. 


IV 

While  State  regulation  is  the  prevailing 
philosophy  of  the  people  at  the  beginning  of 
the  twentieth  century,  it  must  be  borne  in 


TENDENCIES  TOWARD  STATE  CONTROL     7 

mind  that  this  has  been  the  result  of  a  gradual 
progress  of  thought,  and  that  this  progress 
has  not  affected  all  men  equally.  Now,  as  at 
all  times,  there  are  conservatives  and  radicals, 
the  former  as  far  behind  the  prevailing  spirit 
of  the  time  as  the  latter  go  beyond  it.  In 
every  change  of  popular  thought  there  have 
been  those  who  have  been  unable  to  appre- 
ciate the  change;  and  in  every  such  change 
there  have  been  those  who  are  unable  justly 
to  estimate  the  true  meaning  of  the  change. 
We  have,  indeed,  three  general  types  of 
thought  at  every  time:  the  conservatives,  the 
moderates,  and  the  radicals.  Many  persons 
still  hold  conservative  views  as  to  the  appli- 
cation of  the  law  regulating  monopoly  to 
modern  conditions.  They  believe  that  the 
conductors  of  every  business,  however  neces- 
sary to  public  welfare,  should  do  whatever 
seems  good  in  their  own  eyes.  Others,  thor- 
oughly radical,  believe  that  the  State  should 
take  entire  control  of  the  whole  situation. 
But,  as  usually  happens,  the  moderates  hold 
the  balance  of  power  with  their  policy  of 
State  regulation  only  in  so  far  as  it  may  be 
found  to  be  necessary. 

Undoubtedly,  therefore,  the  spirit  of  our 
present  age  demands  that  the  great  business 


8        THE  CONTROL  OF  THE  MARKET 

enterprises  shall  be  conducted  in  accordance 
with  the  requirements  of  society.  The  present 
programme  of  organized  society  is  to  see 
to  it  that  those  who  have  gained  a  substantial 
control  of  their  market  shall  not  be  left  free 
to  exploit  those  who  look  to  them  to  supply 
their  needs.  Men  now  see  clearly  that  free- 
dom of  action  may,  even  in  the  industrial 
world,  work  injuriously  for  the  public,  and 
it  must  then  be  restrained  in  the  public  in- 
terest. We  have  seen  the  results  of  unre- 
strained power;  and  we  no  longer  wish  those 
who  have  control  of  our  destinies  left  free 
to  do  with  us  as  they  please.  Liberty  does 
not  mean  to  men  at  the  beginning  of  the 
twentieth  century  what  it  meant  to  men  at 
the  beginning  of  the  nineteenth  century. 

No  one  can  carefully  study  the  authorities 
on  this  subject  without  feeling  that  we  are 
just  entering  upon  a  great  and  important 
development  of  the  common  law.  What 
branches  of  industry  will  eventually  be  of 
such  public  importance  as  to  be  included  in 
the  category  of  public  concerns,  and  to  what 
extent  the  control  of  the  courts  will  be  carried 
in  the  effort  to  solve,  by  law,  the  modern 
economic  problems,  it  would  be  rash  to  pre- 
dict.    Enormous  business  combinations,  vir- 


TENDENCIES  TOWARD  STATE  CONTROL     9 

tual  monopolization  of  the  necessaries  of  life, 
the  strife  of  labor  and  capital,  now  the  con- 
cern of  the  economist  and  the  statesman,  may 
prove  susceptible  of  legal  control  through  the 
doctrines  of  this  special  law.  General  doc- 
trines have  been  established;  and  upon  this 
successful  working  out  depends,  to  a  large 
extent,  the  future  economic  organization  of 
the  country.  Only  if  the  courts  can  ade- 
quately control  the  established  monopolies 
in  all  contingencies  may  the  business  of  these 
concerns  be  left  in  private  hands. 


CHAPTER  II 

FEEEDOM  FOE  FAIE  COMPETITION 


In  any  consideration  of  industrial  prob- 
lems we  are  confronted  by  the  long  estab- 
lished condition  of  free  competition,  and  the 
still  unquestionable  desire  for  its  continued 
maintenance.  Even  in  these  present  days  of 
elimination  of  competition  by  combination, 
the  public  policy  for  free  competition  is 
asserted  often  as  vehemently  as  ever.  For 
the  most  of  men  still  believe,  and  the  most 
of  judges  with  them,  that  by  the  natural 
processes  of  free  competition  men  find  their 
highest  development.  Of  course,  there  are 
opposed  to  an  absolutely  free  competition 
in  fact  the  natural  barriers  which  necessarily 
accompany  an  industrial  organization.  To 
such  social  limitations  men  may  submit  them- 
selves, however  unwillingly;  but  in  modern 
times  legal  restriction  to  individual  advance- 
ment would  not  be  endured  in  ordinary 
businesses.    The  final  justification  of  the  in- 

10 


FREEDOM  FOR  FAIR  COMPETITION    11 

evitable  losses,  which  free  competition  un- 
fortunately involves,  is  to  be  found  in  this 
well  founded  opinion,  that  fundamental  limi- 
tations upon  free  competition  are  not  only 
wholly  impractical,  but  wholly  incompatible 
with  individual  liberty. 


n 

That  this  is  all  a  matter  of  current  opinion 
may  be  established  by  showing  that  other 
views  were  formerly  expressed  quite  as 
confidently  by  the  courts  of  law.  In  the 
mediaeval  system  as  we  see  it  in  our  earliest 
law  reports,  restriction  of  competition  was 
the  prevalent  doctrine.  It  was  conceived 
that  it  was  better  both  for  producer  and 
consumer  to  have  a  special  position  in  the 
economic  order  assigned  to  every  man. 
Each  man  had  a  right  to  his  place  in  the 
established  order  according  to  his  rank,  with 
its  corresponding  duty.  So  long  as  this  con- 
dition of  affairs  gave  satisfaction  to  the  most 
of  men,  it  received  the  support  of  the  most 
of  courts. 

These  special  rights  in  special  businesses 
met  one  at  every  turn  in  mediaeval  trade 
and   business.      Almost    all    the    crafts    and 


12      THE  CONTROL  OF  THE  MARKET 

manufactures  were  parceled  out  by  special 
franchises  to  various  guilds  and  fraternities, 
each  of  which  had  exclusive  right  in  its  own 
field.  So  local  trading  and  distant  commerce 
were  in  the  hands  of  the  guilds  merchant  and 
trading  companies,  each  with  an  extensive 
monopoly  by  its  original  constitution.  The 
same  arrangements  ordered  activities  within 
the  manor.  The  course  of  husbandry  and 
the  rotation  of  the  crops  were  regulated  by 
an  established  system.  The  incidental  serv- 
ices, like  those  of  baker,  miller,  farrier  and 
butcher,  were  provided  for  by  exclusive 
franchises.  Markets  and  fairs  were  estab- 
lished for  the  sale  of  products  and  legally 
protected,  so  that  none  might  barter  his  goods 
elsewhere  during  those  periods.  And,  of 
course,  hunting  and  fishing  were  preserved 
and  reserved. 

Times  change,  however,  and  the  laws 
with  them;  when  the  doctrines  of  the 
Renaissance  became  current,  men  were  no 
longer  content  with  the  older  restrictions 
which  so  hampered  the  advancement  of  the 
individual.  So  far  as  one  case  can  evidence  it, 
the  turning  point  in  our  law  was  the  School- 
masters' Case  in  1410  (Y.  B.  11  Hen.  IV. 
47,  21).     The  masters  of  a  grammar  school 


FREEDOM  FOR  FAIR  COMPETITION    13 

of  Gloucester  brought  a  writ  of  trespass 
against  another  master,  and  counted  that 
the  defendant  had  started  a  school  in  the 
same  town,  so  that  whereas  the  plaintiffs 
had  formerly  received  40d.  a  quarter  from 
each  child,  now  they  only  got  12d.  to  their 
damage.  The  counsel  for  plaintiffs  con- 
tended that  this  interference  shown  and  this 
damage  proved  made  a  good  action  on  the 
case;  he  cited  many  instances  of  exclusive 
rights,  including  the  claim  of  the  masters 
of  Paul's  that  there  should  be  no  other  mas- 
ters in  all  London  except  themselves.  But 
Justice  Hill  said  that  there  was  no  ground 
to  maintain  this  action,  since  the  plaintiffs 
had  no  estate,  but  a  ministry  for  the  time; 
and  though  another  equally  competent  with 
the  plaintiffs  came  to  teach  the  children,  "  this 
was  a  virtuous  and  charitable  thing,  and  an 
ease  to  the  people,  for  which  he  could  not  be 
punished  by  the  law." 

This  was  not  accepted  as  good  law  with- 
out a  struggle.  A  generation  later  in  the 
case  of  the  Prior  of  Nedeport  ( Y.  B.  22  Hen. 
VI.  14  b)  we  have  a  long  and  heated  argu- 
ment between  counsel  and  court  over  a  writ 
claiming  damages  for  the  injury  done  to  the 
business  of  the  mill  of  the  prior  by  the  estab- 


U      THE  CONTROL  OF  THE  MARKET 

lishment  of  a  mill  by  another  party  without 
authority.  Finally  Justice  Newton  disposed 
of  the  argument  for  the  plaintiff  by  putting 
supposititious  cases.  He  concluded  with  this : 
Let  us  suppose  that  there  is  a  freeholder  in 
a  certain  vill  who  is  making  large  profits  by 
using  his  lands  for  pasturing  cattle,  and  then 
another  turns  his  arable  land  into  pastures, 
thereby  getting  from  the  inhabitants  the 
agisting  of  many  beasts,  will  there  be  a 
remedy  for  the  first  landowner?  "  Clearly 
not;  for  it  is  lawful  for  an  owner  to 
make  the  best  profit  he  can  from  his 
land." 

Not  only  did  these  cases  establish  for  the 
future,  beyond  all  doubt,  that  competition 
was  to  be  free  unless  an  exclusive  franchise 
had  been  granted  in  explicit  terms,  but  they 
declared,  with  the  high  hope  of  new  enthu- 
siasm, that  free  competition  was  altogether 
beneficial.  After  some  centuries  of  experi- 
ence, such  indiscriminate  praise,  it  may  be, 
would  not  bfe  given  the  competitive  system. 
It  has  been  found  out  that  the  competitive 
regime  along  with  its  good  results  has  brought 
deplorable  injustices,  even  to  meritorious  in- 
dividuals. But  there  are  few  persons,  not- 
withstanding this,  who  would  assert  that  any 


FREEDOM  FOR  FAIR  COMPETITION    15 

practicable  method  of  ordering  human  affairs 
would  produce  better  results. 


Ill 

And,  indeed,  this  belief  in  free  competition 
is  so  fundamental  in  modern  opinion  that 
the  issue  is  hardly  to  be  found  in  litigation 
in  modem  books.  As  a  usual  thing  it  is  only 
incidentally  that  the  question  comes  up,  as 
in  Allen  v.  Flood  (1898  A.  C.  1) ,  where  Lord 
James  of  Hereford  supposes  this  case:  An 
architect  seeks  to  be  employed  to  the  exclu- 
sion of  his  rivals.  He  says:  "My  plans  are 
the  best,  and  following  them  will  produce  the 
best  house  at  the  least  cost.  Therefore,  em- 
ply  me  and  not  A.  or  B."  Can  this  rival 
sue?  His  Lordship  says  not,  clearly:  "  Be- 
fore discussing  the  question  it  is  necessary 
that  some  definition  of  the  words  '  interfered 
with '  in  their  legal  sense  should  be  given. 
Every  man's  business  is  liable  to  be  *  inter- 
fered with '  by  the  action  of  another,  and  yet 
no  action  lies  for  such  interference.  Competi- 
tion represents  *  interference,'  and  yet  it  is 
in  the  interest  of  the  community  that  it  should 
exist.  A  new  invention  utterly  ousting  an 
old  trade  would  certainly  *  interfere  with '  it. 


16      THE  CONTROL  OF  THE  MARKET 

If,  too,  this  loose  language  is  to  be  held  to 
represent  a  legal  definition  of  liability,  very 
grave  consequences  would  follow." 

Again,  in  Vegelahn  v.  Guntner  (167  Mass. 
92),  Mr.  Justice  Holmes  propounds  by  way 
of  illustration  the  case  of  rival  shopkeepers, 
a  new  man  endeavoring  to  drive  the  old  man 
out  of  business.  The  town,  he  supposes,  is 
too  small  to  support  more  than  one,  and  the 
new  man  succeeds  in  getting  all  the  business 
of  his  rival  within  a  short  time.  Yet  it  is  the 
necessary  decision  that  no  legal  wrong  is 
done:  "  The  reason,  of  course,  is  that  the 
doctrine  generally  has  been  accepted  that 
free  competition  is  worth  more  to  society 
than  it  costs,  and  that  on  this  ground  the 
infliction  of  the  damage  is  privileged.  Yet 
even  this  proposition  nowadays  is  disputed 
by  a  considerable  body  of  persons,  includ- 
ing many  whose  intelligence  is  not  to  be 
denied,  little  as  we  may  agree  with  them. 
I  have  chosen  this  illustration  partly  with 
reference  to  what  I  have  to  say  next.  It 
shows  without  the  need  of  further  authority 
that  the  policy  of  allowing  free  competition 
justifies  the  intentional  inflicting  of  tem- 
poral damage,  including  the  damage  of  in- 
terference  with   a  man's  business,   by   some 


FREEDOM  FOR  FAIR  COMPETITION    17 

means,  when  the  damage  is  done  not  for  its 
own  sake,  but  as  an  instrmnentality  in  reach- 
ing the  end  of  victory  in  the  battle  of  trade." 


IV 

It  is  not  altogether  impossible  to  find  cases 
where  the  decision  turns  upon  the  fact  that 
what  is  complained  of  is  nothing  more  than 
mere  competition;  for  a  judge  will  sometimes 
find  it  a  convenient  method  of  disposing  of 
a  case  to  reduce  it  thus  to  simplest  terms. 
In  Snowden  v.  Noah  (Hopkins  Ch.  351), 
for  example,  an  injunction  asked  by  the  pur- 
chaser of  a  newspaper  property  to  prevent 
the  former  editor,  who  had  set  up  a  new 
journal,  from  getting  away  his  subscribers 
was  refused.  Chancellor  Hopkins  saying: 
"  The  business  of  printing  and  publishing 
newspapers,  being  equally  free  to  all,  the  loss 
to  one  newspaper  establishment,  which  may 
follow  from  the  competition  of  any  rival 
establishment,  is  merely  a  consequence  of 
the  freedom  of  this  competition,  and  gives 
no  claim  to  legal  redress." 

An  interesting  case,  involving  much  the 
same  point,  was  Ayer  v.  Rushton  (7  Daly 
9).      The    proprietors    of    Ayer's    "Cherry 


18      THE  CONTROL  OF  THE  MARKET 

Pectoral "  sought  to  enjoin  Rushton  &  Co., 
an  enterprising  firm  of  druggists,  who  were 
compounding  a  "  Cherry  Pectoral "  of  their 
own.  Conspicuously  placed  in  the  windows 
were  placards  with  the  words,  "  Ayer's 
Cherry  Pectoral,  one  dollar — Rushton's 
Cherry  Pectoral,  fifty  cents — Which  will  you 
have?"  Rushton's  clerks  were  carefully  in- 
structed to  ask  persons  inquiring  for  Cherry 
Pectoral  which  they  wanted,  "  Rushton's  "  or 
"  Ayer's,"  and  to  say  that  "  Rushton's  "  was 
much  better,  although  they  had  both  in  stock. 
On  this  evidence  the  court,  of  course,  could 
find  nothing  but  fair  competition,  as  every 
effort  had  been  made  to  distinguish  the 
preparations  for  the  purpose  of  inducing 
customers  to  buy  Rushton's  Pectoral  instead 
of  Ayer's. 


Another  way  in  which  the  question  comes 
up  is  when  a  person  who  has  been  damaged 
by  the  construction  of  the  works  for  a  com- 
peting business  claims  that  he  is  one  of  the 
persons  who  should  have  compensation, 
reparation  having  been  provided  for  in  some 
general  way.  Thus  in  Hopkins  v.  Great 
Northern  Railway  (L.  R.  2  Q.  B.  D.  224), 


FREEDOM  FOR  FAIR  COMPETITION    19 

the  proprietor  of  a  ferry  sued  the  railway 
company  for  damage  caused  to  his  business 
by  the  construction  of  the  railway  bridge 
across  the  river,  which  diverted  travel  from 
his  ferry.  Lord  Justice  Mellish  held  that 
the  complainants  were  not  entitled  to  any- 
thing: "  If  owners  of  ferries  are  held  entitled 
to  compensation,  they  will  certainly  form  a 
singular  exception  to  all  other  persons  who 
were  the  owners  of  highways,  or  had  a  legal 
interest  in  the  profits  to  be  derived  from  the 
use  of  highways  before  railways  were  in- 
vented. It  can  hardly  be  necessary  to 
enumerate  the  different  classes  of  persons 
who  had  a  legal  interest  in  the  old  highways, 
and  who  have  suffered  loss  from  the  diversion 
of  traffic  from  those  highways  to  railways: 
proprietors  of  canals,  turnpike  trustees,  hold- 
ers of  turnpike  bonds,  trustees  of  river  navi- 
gations, and  holders  of  bonds  secured  on  their 
tolls,  have  all  suffered  great  losses  from 
the  diversion  of  traffic  to  railways  and  have 
received  no  compensation.  No  doubt  their 
rights  have  not  been  infringed,  though  their 
property  has  been  affected." 

There  are  several  cases,  also,  where  the 
grantees  of  a  franchise  have  brought  suit 
against   those   who   are   damaging   their  in- 


20      THE  CONTROL  OF  THE  MARKET 

terests  by  conducting  a  competing  business 
in  which  the  courts,  upon  the  strictest  con- 
struction of  the  franchise,  have  held  that 
this  particular  kind  of  competition  was  not 
in  violation  of  the  franchise,  and  therefore 
have  dismissed  the  suit,  since  nothing  but 
mere  competition  remained  as  the  basis  of 
the  complaint.  Such  were  substantially  the 
facts  in  Illinois  and  Michigan  Canal  v. 
Chicago  and  Rock  Island  Railroad  (14  111. 
314),  where  a  canal  company  complained  of 
the  interference  with  its  business  by  the 
construction  of  a  railroad  paralleling  it.  In 
discussing  the  case,  Mr.  Justice  Caton  said: 
"  Who  shall  anticipate  the  new  methods  of 
intercommunication  which  the  ingenuity  of 
this  wonderful  age  may  devise,  or  the  im- 
provements which  may  be  made  in  the  old? 
Who  can  set  bounds  to  the  wants  in  this 
respect  which  new  developments  may  sug- 
gest? And  shall  we  imply  and  intend,  even 
with  the  aid  of  the  most  liberal  rule  of  con- 
struction, that  the  legislature  designed  to  sur- 
render the  right  to  allow  the  people  to  avail 
themselves  of  improved  modes  of  communica- 
tion or  commerce?" 


FREEDOM  FOR  FAIR  COMPETITION    21 

71 

It  would  seem  that  the  right  to  cut  prices, 
whatever  damage  may  result  to  competitors, 
is  a  fundamental  privilege  in  competition. 
In  the  very  important  case  of  the  Mogul 
Steamship  Company  v.  McGregor  (L.  R.  23 
Q.  B.  D.  598),  one  of  the  matters  of  which 
the  tramp  steamship  owners  complained  was 
that  the  regular  steamship  companies  sent 
additional  ships  to  Hankow  and  smashed 
freights,  in  order  to  ruin  them  or  drive  them 
from  the  field.  In  holding  that  this  con- 
stituted no  legal  wrong  Lord  Justice  Bowen 
said:  "It  would  impose  a  novel  fetter  upon 
trade.  The  defendants,  we  are  told  by  the 
plaintiffs'  counsel,  might  lawfully  lower  rates, 
provided  they  did  not  lower  them  beyond  a 
'  fair  freight,'  whatever  that  may  mean.  But 
where  is  it  established  that  there  is  any  such 
restriction  upon  commerce?  And  what  is  to 
be  the  definition  of  a  *  f  air  freight'?  It  is 
said  that  it  ought  to  be  a  normal  rate  of 
freight,  such  as  is  reasonably  remunerative  to 
the  shipowner.  But  over  what  period  of  time 
is  the  average  of  this  reasonable  remunera- 
tiveness  to  be  calculated?  All  commercial 
men   with   capital   are    acquainted   with   the 


22      THE  CONTROL  OF  THE  MARKET 

ordinary  expedient  of  sowing  one  year  a 
crop  of  apparently  unfruitful  prices,  in 
order  by  driving  competition  away  to  reap 
a  fuller  harvest  of  profit  in  the  future;  and 
until  the  present  argument  at  the  bar  it 
may  be  doubted  whether  shipowners  or 
merchants  were  ever  deemed  to  be  bound  by 
law  to  conform  to  some  imaginary  *  normal ' 
standard  of  freights  or  prices,  or  that  law 
courts  had  a  right  to  say  to  them  in  respect 
of  their  competitive  tariffs,  '  Thus  far  shalt 
thou  go,  and  no  further.'  To  attempt  to 
limit  English  competition  in  this  way  would 
probably  be  as  hopeless  an  endeavor  as  the 
experiment  of  King  Canute." 

Undoubtedly  the  excellent  opinion  just 
quoted  represents  the  law  everywhere.  All 
that  there  is  against  it  is  an  interesting 
dictum  in  Averrill  v.  Southern  Railway  (75 
Fed.  Rep.  736),  where  the  receiver  of  a  rail- 
way filed  a  bill  asking  the  aid  of  the  court 
in  protecting  the  property  against  a  rate 
war  inaugurated  by  the  Southern  Railway. 
A  cut  of  35  per  cent,  had  been  made  with 
notice  that,  if  this  was  met,  a  further  cut  of 
80  per  cent,  would  be  made  in  the  rates.  It 
was  alleged  that  its  ultimate  object  in  this 
was    to    annihilate    competition    by    the    de- 


FREEDOM  FOR  FAIR  COMPETITION   23 

struction  of  its  competitors.  How  deplor- 
able, in  a  public  service,  this  seemed  to  Mr. 
Justice  Simonton,  may  be  seen  from  his 
extreme  language:  "The  destructive  results 
of  a  rate  war  waged  between  two  great  sys- 
tems of  railroads  are  recognized  and  depre- 
cated by  men  of  the  greatest  ability  who 
have  considered  the  subject.  They  impair 
and  destroy  the  usefulness  of  the  railroads 
themselves,  and  their  ability  to  serve  the 
public  with  certainty,  efficiency,  and  safety. 
The  business  interests  of  the  community 
which  move  the  crops  and  bring  supplies  to 
the  consumer  require  that  rates  be  stable. 
Every  precaution  has  been  taken  by  state 
legislatures  and  by  the  congress  to  keep 
them  just  and  reasonable, — ^just  and  reason- 
able for  the  public  and  for  the  carriers.  A 
few  favored  points  and  a  few  persons  may 
for  a  short  time  receive  temporary  advan- 
tage. But  the  result  of  such  a  war  is  the 
destruction  of  values,  the  disturbance  and 
injury  of  all  business  interests,  the  demoral- 
ization and  confusion  of  rates,  and  great 
public  and  private  loss." 


M      THE  CONTROL  OF  THE  MARKET 

vn 

The  attempt  in  every  modern  case  of  this 
sort  is,  therefore,  to  show  something  more 
than  mere  competition — to  show  in  the  par- 
ticular case  there  are  special  circmnstances 
which  bring  the  case  outside  the  ordinary 
course  of  competition.  A  striking  instance 
of  this  is  the  recent  case  of  Passaic  Print 
Works  V.  Ely  &  Walker  Dry  Goods  Com- 
pany (105  Fed.  163).  These  manufacturers 
of  various  brands  of  calicoes,  which  sold 
usually  at  fixed  prices,  complained  of  a  cir- 
cular sent  out  by  these  jobbers,  wholly  ma- 
liciously, so  it  was  alleged,  offering  these 
prints  at  cut  prices.  This  injured  the  manu- 
facturers' trade;  for  no  other  jobber  could 
sell  "  Central  Park  Shirtings  "  at  3^/2  cents 
per  yard,  the  list  price,  while  these  jobbers 
were  offering  the  same  goods  at  2}i  cents. 
The  majority  of  the  court — Mr.  Justice 
Thayer  writing  the  opinion — decided  against 
the  complainants;  the  gist  of  his  opinion 
being  this:  "The  owner  of  property,  real 
or  personal,  has  an  undoubted  right  to  sell 
it  and  to  offer  it  for  sale  at  whatever  price 
he  deems  proper,  although  the  effect  of  such 
offer  may  be  to  depreciate  the  market  value 


FREEDOM  FOR  FAIR  COMPETITION   25 

of  the  commodity  which  he  thus  offers,  and 
incidentally  to  occasion  loss  to  third  parties 
who  have  the  same  kind  or  species  of  prop- 
erty for  sale." 

It  should  be  noted  that  the  decision  in 
this  case  goes  to  the  extreme  of  making  com- 
petition an  absolute  justification,  regardless 
of  circumstances.  But  in  Tuttle  v.  Buck 
(107  Minn.  145)  there  is  a  late  authority 
the  other  way.  It  was  held  in  that  case  that 
a  complaint  stated  a  legal  wrong  which  stated 
in  substance,  that  the  defendant,  a  banker 
and  a  man  of  wealth  and  influence  in  the 
community,  maliciously  established  a  barber 
shop,  employed  a  barber  to  carry  on  the  busi- 
ness, and  used  his  personal  influence  to 
attract  customers  from  the  plaintiff's  barber 
shop,  not  for  the  purpose  of  serving  any 
legitimate  purpose  of  his  own,  but  for  the  sole 
purpose  of  maliciously  injuring  the  plaintiff, 
whereby  the  plaintiff's  business  was  ruined. 
The  opinion  of  Mr.  Justice  Elliott  shows 
real  insight  into  the  nature  of  the  problem, 
as  even  the  following  extracts  abundantly 
show.  "  It  must  be  remembered  that  the 
common  law  is  the  result  of  growth  and 
that  its  development  has  been  determined  by 
the  social  needs  of  the  community  which  it 


«6      THE  CONTROL  OF  THE  MARKET 

governs.  It  is  the  resultant  of  conflicting 
social  forces,  and  those  forces  which  are  for 
the  time  dominant  leave  their  impress  upon 
the  law.  For  generations  there  has  been  a 
practical  agreement  upon  the  proposition  that 
competition  in  trade  and  business  is  desirable ; 
and  this  idea  has  found  expression  in  the 
decisions  of  the  courts,  as  well  as  in  statutes. 
But  it  has  led  to  grievous  and  manifold 
wrongs  to  individuals;  and  many  courts  have 
manifested  an  earnest  desire  to  protect  the 
individual  from  the  evils  which  result  from 
unrestrained  business  competition.  The  prob- 
lem has  been  to  so  adjust  matters  as  to  pre- 
serve the  principle  of  competition  and  yet 
guard  against  its  abuse  to  the  unnecessary 
injury  to  the  individual.  To  divert  to 
one's  self  the  customers  of  a  business 
rival  by  the  offer  of  goods  at  lower 
prices  is  in  general  a  legitimate  mode  of 
serving  one's  own  interest,  and  justifiable 
as  fair  competition.  But  when  a  man  starts 
an  opposition  place  of  business,  not  for  the 
sake  of  profit  to  himself,  but  regardless  of 
loss  to  himself,  and  for  the  sole  purpose  of 
driving  his  competitor  out  of  business,  and 
with  the  intention  of  himself  retiring  upon 
the  accomplishment  of  his  malevolent   pur- 


FREEDOM  FOR  FAIR  COMPETITION   27 

pose,  he  is  guilty  of  a  wanton  wrong  and 
an  actionable  tort." 

VIII 

According  to  the  better  opinion  at  the 
present  time,  as  expressed  in  the  writings 
of  the  many  authorities  who  have  turned  their 
attention  of  late  to  the  problem  of  the  place 
of  competition  in  the  law,  fair  competition  is 
considered  as  a  matter  of  justification  upon 
grounds  of  policy.  The  accepted  theory  is 
that  every  man  engaged  in  business  has  a 
right  prima  facie  to  have  his  custom  undis- 
turbed; in  this  view  a  person  who  diverts 
trade  from  him  commits  a  legal  wrong  prima 
facie.  But  if  this  trade  is  invaded  in  the 
course  of  fair  competition  there  is  a  recog- 
nized justification;  while  there  is  no  valid 
excuse  in  the  case  of  unfair  competition. 
The  comparison  of  two  cases  may  bring  this 
out  more  clearly. 

In  Graham  v.  St.  Charles  Street  Railway 
(47  La.  Ann.  214)  a  foreman  posted  a 
notice  to  the  effect  that  he  would  discharge 
employees  who  should  continue  to  deal  with 
Graham,  a  grocer.  The  court  held  that 
such  unjustifiable  interference  with  the 
grocer's    business    constituted    an    actionable 


28      THE  CONTROL  OF  THE  MARKET 

wrong,  Chief  Justice  Nichols  saying:  "  In 
so  doing  the  defendants  would  not  only  con- 
trol their  own  will,  action,  and  conduct, 
but  forcibly  control  and  change,  from  pure 
motives  of  malice  the  choice  and  will  of 
others,  through  fear  of  non-employment  or 
discharge.  This  will  and  power  of  choice, 
both  the  plaintiff  and  the  parties  themselves 
are  entitled  to  have  left  free,  and  not  coerced 
in  order  to  simply  work  the  former  damage 
and  injury." 

On  the  other  hand,  in  Robinson  v.  Texas 
Pine  Land  Association  (40  S.  W.  Rep.  843), 
where  the  Land  Company  gave  notice  that 
it  would  discharge  employees  who  did  not 
trade  at  its  store,  but  bought  supplies  of 
Robinson,  the  court  held  that  there  was  no 
actionable  wrong.  As  Chief  Justice  James 
said:  "  If  the  defendant  could  so  control  its 
employees  as  to  prevent  their  dealing  with 
plaintiff,  or  so  control  their  wages  as  to 
divert  them  from  the  channels  of  the  plain- 
tiff's business  in  favor  of  his  own,  we  know 
no  rule  making  it  actionable.  Had  the 
defendant  no  proper  interest  of  his  own  to 
subserve  in  so  doing,  but  had  acted  wantonly 
in  causing  loss  to  plaintiff,  the  rule  would 
have  been  different.     The  fact  that  defend- 


FREEDOM  FOR  FAIR  COMPETITION    29 

ant's  purpose  by  the  act  was  to  break  plain- 
tiff up  in  business  would  not  give  the  cause 
of  action,  for  that  is  the  natural  result  of 
successful  competition." 

It  is  submitted  that  both  of  these  cases 
are  good  law,  but  it  would  be  impossible 
to  reconcile  them  without  the  theory  here 
defended;  however,  this  general  theory  is 
now  so  well  accepted  that  it  no  longer  re- 
quires an  elaborate  defense.  The  right  of 
every  man  in  any  business  to  adequate  pro- 
tection of  his  probable  expectancy  is  now  well 
established;  but  equally  well  recognized  is 
the  necessary  justification  of  any  damage 
caused  a  business  rival  in  the  regular  course 
of  fair  competition. 

IX 

What  is  not  justifiable  under  these  rules 
is  seen  in  London  Guaranty  and  Accident 
Company  v.  Horn  (206  111.  493) .  One  Horn, 
while  in  the  employ  of  Arnold,  Schwinn  & 
Co.,  suffered  the  loss  of  two  fingers  on  his 
right  hand  while  attempting  to  operate  a 
milling  machine.  At  the  time  of  this  injury 
Arnold,  Schwinn  &  Co.,  carried  an  indemnity 
policy  in  the  London  Guaranty  and  Accident 


80      THE  CONTROL  OF  THE  MARKET 

Company,  which  provided  that  the  Guaranty 
Company  could  cancel  the  policy  at  any 
time  upon  giving  five  days'  notice.  Horn 
brought  suit  against  Arnold,  Schwinn  &  Co., 
in  which  a  verdict  was  subsequently  rendered 
for  $3500,  from  which  judgment  an  appeal 
was  taken,  which  was  pending  at  the  time  of 
the  trial  of  this  case.  Pending  that  suit,  one 
Robinett,  representing  the  Guaranty  Com- 
pany, called  at  the  factory  of  Arnold, 
Schwinn  &  Co.,  where  Horn  had  been  em- 
ployed, and  offered  Horn  $100  in  settlement 
of  his  claim,  telling  him  that  unless  he 
accepted  that  amount  he  would  have  him  dis- 
charged by  Arnold,  Schwinn  &  Co.  Robinett 
then  said  to  O'Connell,  in  the  presence  of 
Horn,  that  O'Connell  would  have  to  dis- 
charge Horn,  as  he  refused  to  give  the 
company  a  release.  O'Connell  at  first  was 
much  disinclined  to  discharge  Horn;  but 
finally  did  so  upon  the  threat  being  made  that 
otherwise  the  Guaranty  Company  would 
cancel  the  policy.  The  Illinois  Court  held 
that  Horn  could  recover  from  the  Guaranty 
Company  the  damages  caused  him  by  losing 
his  job.  Mr.  Justice  Scott  thus  concluded 
his  opinion:  *'  It  follows  therefore  that  the 
act    of    the    defendant    complained    of    was 


FREEDOM  FOR  FAIR  COMPETITION   31 

wrongful,  and  in  the  legal  sense  of  the  term 
malicious,    because    without    justification." 

To  be  compared  with  this  is  a  case  upon 
the  other  side  of  the  line.  The  facts  are 
essentially  alike,  except  for  the  new  factor 
that  there  is  competition  between  the  liti- 
gants. In  this  case  of  Walsh  v.  Dwight  (40 
N.  Y.  App.  Div.  513)  it  appeared  that  the 
Dwight  concern,  the  proprietors  of  the  Cow 
Brand  of  saleratus,  sold  their  product  to 
jobbers  upon  special  terms,  giving  a  rebate 
to  those  jobbers  who  would  agree  not  to  sell 
any  saleratus  or  soda  in  bulk  or  in  boxes  at 
less  price  than  the  list  rates  for  Dwight's 
Cow  Brand.  The  Walsh  concern  complained 
that  thereby  they  were  unable  to  market 
their  products  through  these  jobbers  at  all, 
since  none  would  buy  their  less  known  goods 
at  these  prices;  and  they  added  that  the 
prices  asked  for  the  Cow  Brand  were  ficti- 
tious and  extortionate,  caused  by  extensive 
and  extravagant  advertising.  But  naturally 
Mr.  Justice  Ingraham  could  see  nothing  ille- 
gal in  what  was  being  done  in  this  case,  since 
the  justification  of  competition  was  appar- 
ent. "  The  defendants  simply  offered  to 
parties  purchasing  their  goods  to  make  a 
reduction  in  the  price  of  the  goods  sold,  in 


82      THE  CONTROL  OF  THE  MARKET 

consideration  of  the  purchasers  agreeing  not 
to  sell  the  goods  at  a  less  price  than  that 
named,  and  not  to  sell  the  goods  of  other 
manufacturers  at  a  less  price  than  that  at 
which  they  agreed  to  sell  the  defendants' 
goods.  It  is  difficult  to  see  upon  what  ground 
it  can  be  claimed  that  such  a  contract  is  ille- 
gal." 


It  is  because  of  the  underlying  public 
policy  that  lawful  competition  justifies  in- 
terference with  the  business  of  another.  The 
theory  is  that  free  competition  is  for  the 
best  interests  of  society;  for  it  is  believed 
that  the  law  does  its  best  for  all  when  it  gives 
to  every  man  an  equal  chance.  Enough  has 
been  quoted  to  show  how  inveterate  the  be- 
lief has  become  that  free  competition  is  for 
the  best  interests  of  society.  The  State  acting 
through  the  courts  is  permitting  the  despe- 
rate struggle  for  individual  advancement  to 
go  on  with  the  fewest  possible  rules,  because 
the  most  of  us  believe  that  this  is  for  the 
best  for  all  of  us.  It  is  not  a  perfect  way 
of  ordering  our  world — far  from  it.  jJo 
economist  can  fail  to  see  that  the  competi- 
tive system  has  not  only  its  costly  roistakes. 


FREEDOM  FOR  FAIR  COMPETITION   33 

but  its  inevitable  wastes.  Moreover,  there  is, 
in  some  lines  of  production  and  distribution, 
a  danger  that,  if  the  law  permits  competi- 
tion to  go  to  every  length,  the  survival  only 
of  the  fittest  may  unduly  reduce  the  number 
of  the  competitors,  so  that  in  the  end  much 
of  the  benefit  of  competition  may  be  lost. 
IVfosFof  us  still  believe  that  the  advance  in 
the  arts  and  the  march  of  commerce  in  mod- 
em times  have  been  due  to  the  incentive  of 
competition.  More  than  this,  we  believe  that 
never  in  the  history  of  mankind  has  the  ex- 
ceptional man  had  such  opportunity,  nor  the 
average  man  such  return  for  his  industry, 
as  in  modern  times  under  the  competitive 
system.  And,  as  we  have  seen,  so  long  as 
this  is  public  opinion,  the  public  policy  for 
free  competition  will  remain. 


NOTE 

One  is  quite  justified  by  the  latest  authorities  in 
basing  everything  upon  this  fundamental  theory,  that 
intentional  interference  with  business  rights  is  prima 
facie  a  clear  tort,  and  that,  unless  plain  justification 
be  sufficiently  shown,  action  lies.  See,  among  many 
others,  the  following  cases:  Chipley  v.  Atkinson,  23  Fla. 
206;  Hollenbeck  v.  Ristine,  114  Iowa,  358;  London 
Guaranty  Co.  v.  Horn,  206  111.  493;  Tuttle  v.  Buck, 
107  Minn.  145;  Klengel  v.  Sharp,  104  Md.  218;  Kirk- 
wood  V.  Finnegan,  95  Mich.  543.  These  principles  are 
most  elaborately  worked  out  in  the  long  series  of  able 
opinions  in  Massachusetts,  the  most  informing  of  which 
is  perhaps  Pickett  v.  Walsh,  192  Mass.  572.  And  it 
is  stated  with  the  utmost  accuracy  in  the  New  Jersey 
decisions,  particularly  in  Jersey  City  Co.  v.  Cassidy, 
63  N.  J.  Eq.  769- 

This  general  theory  is  strongly  opposed  in  recent 
times  by  the  majority  opinions  in  Allen  v.  Flood,  1898 
A.  C.  1,  and  in  National  Assn.  v.  Cummings,  170  N.  Y. 
315.  But  in  view  of  later  cases  these  opinions  can 
hardly  be  said  to  represent  the  law  even  in  their  re- 
spective jurisdictions.  Payne  v.  Railroad,  3  Lea.  507, 
and  Raycroft  v.  Taynter,  68  Vt.  219>  seem  to  be  based 
upon  this  opposite  theory.  But  Guethler  v.  Altman, 
26  Ind.  App.  587  and  Heywood  v.  Tillson,  75  Me.  225, 
usually  cited  to  the  same  effect,  are  plainly  distinguish- 
able, as  there  was  certainly  sufficient  justification  for 
the  interference  shown  in  the  facts  of  those  cases. 


86 


CHAPTER  III 

TYPES    OF   UNFAIR   COMPETITION 


Mere  competition,  however,  is  not  a  suffi- 
cient justification  for  taking  away  business 
from  a  rival;  it  must  be  fair  competition  as 
well.  Generally  speaking,  a  customer  may 
be  taken  away  from  a  rival  by  any  fair  in- 
ducement, but  not  by  any  unfair  methods. 
Advertisement  and  solicitation,  for  example, 
are  fair;  fraud  and  intimidation,  equally 
plainly,  are  unfair.  That  is  held  fair  which 
the  community  regards  as  consistent  with  its 
safety;  that  is  held  unfair  which  the  State 
considers  dangerous  to  its  peace.  What  is 
fair  and  what  is  unfair  can  hardly  be  more 
exactly  defined  without  hampering  us  too 
much  in  dealing  with  new  conditions.  The 
predatory  tactics  of  the  modem  trusts  have 
shown  us  that  there  are  new  wrongs  which 
our  law  must  be  prepared  to  meet.  It  is 
not  enough  to  maintain  an  effective  police 
against  the  old  wrongs.     There  are  new  sins 


TYPES  OF  UNFAIR  COMPETITION      37 

against  industrial  society  which  the  law  must 
be  capable  of  reaching.  In  dealing  with  the 
traditional  law,  however,  one  may  generalize 
enough  to  cover  the  present  situation.  A 
narrow  conception  of  the  older  cases  would 
not  give  the  law  scope  enough  to  meet  these 
new  conditions.  But  considered  in  a  broad 
way  the  older  cases  will  give  us  authority 
enough  to  deal  with  the  present  situation. 
For  thus  our  common  law,  as  a  system  of 
justice,  proves  itself,  from  age  to  age,  cap- 
able of  dealing  with  the  wrongs  of  which  that 
age  complains. 

n 

The  most  obvious  case  of  unfair  competi- 
tion would  seem  to  arise  where  a  customer 
who  is  under  contract  with  one  dealer  is  in- 
duced by  another  to  break  that  contract. 
The  first  case  in  which  this  was  held  to  be 
unfair  competition  was,  however,  the  com- 
paratively recent  case  of  Lumley  v.  Gye 
(2  E.  &  B.  216).  A  Miss  Wagner  being 
under  contract  to  sing  for  one  Lumley, 
another  manager,  Gye,  induced  Miss  Wagner 
to  break  her  contract  and  sing  for  him.  The 
court  held  that  this  inducement  constituted  a 
legal  wrong,  in  analogy  to  the  ancient  action 


38      THE  CONTROL  OF  THE  MARKET 

for  the  enticement  of  a  servant.  Mr.  Justice 
Earle  indicated  the  wider  ground  upon  which 
the  case  was  decided.  "  He  who  maliciously 
procures  a  damage  to  another  by  violation  of 
his  right  ought  to  be  made  to  indemnify,  and 
that  whether  he  procures  an  actionable  wrong 
or  a  breach  of  contract.  He  who  procures  the 
non-delivery  of  goods  according  to  contract 
may  inflict  an  injury,  the  same  as  he  who 
procures  the  abstraction  of  goods  after  de- 
livery; and  both  ought,  on  the  same  ground, 
to  be  made  responsible." 

The  most  recent  case  in  England  reaffirms 
this  doctrine,  upon  a  state  of  facts  so  ex- 
traordinary that  it  is  worth  the  consideration 
of  every  student  of  present  conditions.  In 
Glamorgan  Coal  Company  v.  South  Wales 
Miners'  Federation  (1903  2  K.  B.  545),  an 
action  was  brought  by  various  owners  of 
collieries  against  a  miners'  federation,  claim- 
ing damages  for  wrongfully  inducing  work- 
men employed  in  the  collieries  to  break  their 
contracts  of  service.  By  an  elaborate  agree- 
ment between  masters  and  men,  the  wages 
paid  were  upon  a  sliding  scale — higher  when 
the  market  for  coal  was  up,  lower  when  it 
was  down;  by  another  clause  neither  party 
to  the  contract  could  terminate  it  except  by 


TYPES  OF  UNFAIR  COMPETITION      39 

notice  given  on  the  first  of  the  month.  In 
this  state  of  facts,  the  executive  committee 
of  the  Miners'  Federation,  beheving  that  a 
restriction  of  production  would  raise  the 
price  of  coal  in  the  market,  issued  a  manifesto 
that  the  workmen  "  should  observe  Fridays 
and  Saturdays  as  general  holidays."  Counsel 
defended  the  Federation  upon  the  ground 
that  what  was  done  was  solely  with  the 
motive  of  advancing  the  interests  of  the 
men.  But  the  Court  of  Appeal  finally  dis- 
posed of  this  contention.  Lord  Justice  Ster- 
ling saying  on  that  point:  "  The  justification 
set  up  seems  to  me  to  amount  to  no  more  than 
this — that  the  course  which  they  took,  al- 
though it  might  be  to  the  detriment  of  the 
masters,  was  for  the  pecuniary  interest  of 
the  men;  and  I  think  it  wholly  insufficient. 
The  defendants  took  active  steps  to  carry 
this  policy  into  effect,  and,  as  I  have  said, 
interfered  to  bring  about  the  violation  of 
legal  rights." 

ni 

Upon  the  whole  this  English  doctrine  may 
be  said  to  prevail  in  America,  although  there 
are  several  jurisdictions  which  hold  that  in  the 
course  of  competition  one  may  go  so  far  as  to 


40      THE  CONTROL  OF  THE  MARKET 

induce  the  breaking  of  contracts.  In  a  recent 
Kentucky  case,  Chambers  &  Marshall  v.  Bald- 
win (91  Ky.  121),  for  example,  the  substance 
of  the  cause  of  action  was  that  the  plaintiffs 
had  made  a  contract  with  one  Wise  for  his 
crop  of  tobacco  at  five  cents  per  pound,  and 
that  thereafter  the  defendants,  with  full 
knowledge  of  this  contract,  induced  Wise  to 
sell  his  crop  to  them  at  a  higher  price.  But 
Judge  Lewis  said:  "  Competition  in  every 
branch  of  business  being  not  only  lawful, 
but  necessary  and  proper,  no  person  should, 
or  can,  upon  principle,  be  made  liable  in 
damages  for  buying  what  may  be  freely 
offered  for  sale  by  a  person  having  the  right 
to  sell,  if  done  without  fraud,  merely  because 
there  may  be  a  preexisting  contract  between 
the  seller  and  a  rival  in  business,  for  a  breach 
of  which  each  party  may  have  his  legal  rem- 
edy against  the  other.  Nor,  the  right  to  buy 
existing,  should  it  make  any  difference,  in  a 
legal  aspect,  what  motive  influenced  the  pur- 
chaser." 

It  should  be  noted,  however,  that  it  is  uni- 
versally agreed  that  "  to  induce  a  servant  to 
leave  his  master's  service  at  the  expiration 
of  the  time  for  which  the  servant  had  hired 
himself,  although  the  servant  had  no  intention 


TYPES  OF  UNFAIR  COMPETITION      41 

at  the  time  of  quitting  his  master's  service," 
is  not  actionable,  to  use  the  example  put  by 
Lord  Kenyon  in  a  leading  case,  Nichol  v. 
Martyn  (2  Esp.  732),  to  illustrate  the  prin- 
ciple that  "  everyone  has  a  right,  if  he  can, 
to  better  his  situation  in  the  world;  and  if  he 
does  it  by  means  not  contrary  to  law  it  is 
damnum  sine  injuria." 

TV 

Of  course,  if  fraud  is  used  in  competition, 
it  is  illegal.  Unfair  competition  of  this  sort 
has  become  all  too  common  in  modern  trade; 
but  the  courts  bid  fair  to  curb  it.  One  of  the 
earlier  cases  which  put  the  law  on  this  point 
beyond  all  doubt  went  so  far  as  to  decide 
that  men  might  not  use  their  own  names  in 
trade  so  as  to  work  fraud  upon  the  public. 
In  this  case  of  Croft  v.  Day  (7  Beav.  84)  it 
appeared  that  a  blacking  manufactory  had 
long  been  carried  on  under  the  firm  name 
of  Day  &  Martin  at  97  High  Holborn,  Lon- 
don. A  person  by  the  name  of  Day,  with 
one  Martin,  set  up  the  same  trade  at  90^ 
Holborn  Hill.  The  new  concern  marked 
their  product  as  Day  &  Martin's  blacking, 
using  labels  of  a  style  similar  to  that  used 
by  the  old  concern.    The  Master  of  the  Rolls 


42      THE  CONTROL  OF  THE  MARKET 

had  no  doubt  of  his  right  to  issue  an  injunc- 
tion under  these  circumstances:  "  It  has  been 
very  correctly  said  that  the  principle  in  these 
cases  is  this, — that  no  man  has  a  right  to 
sell  his  own  goods  as  the  goods  of  another. 
You  may  express  the  same  principle  in  a  dif- 
ferent form,  and  say  that  no  man  has  a  right 
to  dress  himself  in  colors  or  adopt  and  bear 
symbols,  to  which  he  has  no  peculiar  or  ex- 
clusive right,  and  thereby  personate  another 
person,  for  the  purpose  of  inducing  the  public 
to  suppose,  either  that  he  is  that  other  per- 
son, or  that  he  is  connected  with  and  selling 
the  manufacture  of  such  other  person,  while 
he  is  really  selling  his  own." 

We  have  innumerable  modern  instances 
to  show  how  far  the  law  will  go  to  protect 
one  manufacturer  from  fraudulent  competi- 
tion by  his  rival.  One  of  the  best  reasoned 
of  these  is  Waltham  Watch  Co.  v.  United 
States  Watch  Co.  (173  Mass.  85).  The 
plaintiff  was  the  first  manufacturer  of  watches 
in  Waltham,  and  its  watches  had  acquired  a 
high  reputation  in  the  markets  of  the  world 
as  "  Waltham  watches  "  before  the  defendant 
began  to  do  business  there.  It  was  found 
at  the  hearing  that  the  public  associated  the 
goods  of  the  plaintiff  with  the  name  "  Wal- 


TYPES  OF  UNFAIR  COMPETITION      43 

tham  watch "  ;  and  the  injunction  granted 
upon  this  showing  restrained  the  defendants 
from  calling  its  watches  "  Waltham  watches," 
although  it  manufactured  them  in  Waltham. 
Mr.  Justice  Holmes,  in  sustaining  the  injunc- 
tion, gave  the  modern  theory  with  character- 
istic exactness:  "  In  cases  of  this  sort,  as  in 
so  many  others,  what  ultimately  is  to  be 
worked  out  is  a  point  or  line  between  con- 
flicting claims,  each  of  which  has  meritorious 
grounds  and  would  be  extended  further  were 
it  not  for  the  other.  It  is  desirable  that  the 
plaintiff  should  not  lose  custom  by  reason 
of  the  public  mistaking  another  manufacturer 
for  it.  It  is  desirable  that  the  defendant 
should  be  free  to  manufacture  watches  at 
Waltham,  and  to  tell  the  world  that  it  does 
so.  The  two  desiderata  cannot  both  be  had 
to  their  full  extent,  and  we  have  to  fix  the 
boundaries  as  best  we  can.  On  the  one  hand, 
the  defendant  must  be  allowed  to  accomplish 
its  desideratum  in  some  way,  whatever  the  loss 
to  the  plaintiff.  On  the  other,  we  think  the 
cases  show  that  the  defendant  fairly  may  be 
required  to  avoid  deceiving  the  public  to  the 
plaintiff's  harm,  so  far  as  is  practicable  in  a 
commercial  sense." 


44.      THE  CONTROL  OF  THE  MARKET 


Libelous  statements  must  not  be  used  to 
turn  customers  from  a  rival.  Indeed  the 
law  has  always  been  unusually  considerate  of 
the  reputation  of  tradesmen;  and  when  one 
publishes  of  a  tradesman  or  merchant  any 
matter  in  relation  to  his  calling  which,  if  true, 
would  render  him  unworthy  of  patronage, 
one  is  liable  to  an  action,  even  without  damage 
being  shown.  This  was  pointed  out  in  the 
recent  case  of  Davey  v.  Davey  (50  N.  Y. 
Supp.  161),  and  thus  applied  to  the  facts. 
"  The  litigants  are  brothers.  The  defendant 
carried  on  the  grocery  and  tea  business  at 
No.  2295  First  Avenue,  and  the  plaintiff 
thereafter  opened  a  similar  business  at  No. 
2331  First  Avenue.  The  defendant  threat- 
ened that,  if  the  plaintiff  opened  a  rival 
establishment  near  the  defendant's  store,  he 
would  break  up  the  business  of  the  plaintiff; 
and  after  the  latter  opened  the  store  the  de- 
fendant caused  to  be  printed,  and  distributed 
broadcast,  5000  circulars,  in  which,  after 
eulogistically  describing  the  superiority  of  his 
wares  and  the  advantage  the  public  would 
derive  by  patronizing  him,  he  said,  of  and 
concerning    the    plaintiff    and    his    business 


TYPES  OF  UNFAIR  COMPETITION      45 

methods,  that  an  unscrupulous  grocer  of  the 
same  name  in  the  immediate  vicinity  or 
neighborhood  advertises  '  Davey's  teas  and 
coffees  '  with  a  view  to  deceive  the  public,  and 
may  sell  an  inferior  article.  The  words, 
though  cunningly  devised  and  put  together, 
taken  in  their  plain  and  popular  sense,  that  in 
which  the  readers  were  sure  to  understand 
them,  bear  the  construction  that  the  plaintiff 
was  an  unprincipled  grocer,  that  he  was  dis- 
honest in  his  business,  for  he  advertised 
Davey's  teas  and  coffees  with  a  view  to  de- 
ceive the  public;  and  that  he  sold  inferior 
articles,  this  being  one  of  the  characteristics 
of  unscrupulous  traders.  While  the  defend- 
ant had  the  undoubted  right  to  praise  his  own 
wares,  he  had  no  right  to  single  out  the  plain- 
tiff and  not  only  denounce  his  wares,  but,  in 
connection  therewith,  impugn  his  business  in- 
tegrity." 

Furthermore,  a  false  statement  in  relation 
to  the  goods  sold  by  a  merchant  may  so  in- 
jure him  in  his  business  as  to  give  him  a 
right  of  action  for  damages.  There  are  cases 
enough  in  the  books  of  this  trade  libel,  as  it 
is  usually  called.  In  the  leading  English 
case  of  Western  Counties  Manure  Company 
V,  Lawes  Manure  Company  (L.  R.  9  Exch. 


46      THE  CONTROL  OF  THE  MARKET 

218)  the  facts  were  these:  The  defendants 
published  fabricated  analyses  of  four  artificial 
fertilizers,  showing  its  own  to  be  the  stron- 
gest and  the  cheapest,  and  that  of  the  plaintiffs 
to  be  the  weakest  and  the  dearest.  By  reason 
of  these  advertisements  various  persons,  who, 
if  they  had  not  been  told  that  which  was 
untrue,  would  have  continued  to  deal  with 
the  plaintiffs,  were  alleged  to  have  ceased  to 
deal  with  them.  Commenting  on  these  facts 
in  his  decision.  Lord  Bramwell  said:  "  It 
seems  to  me,  however,  that  where  a  plaintiff 
says,  '  You  have  without  lawful  cause  made 
a  false  statement  about  my  goods  to  their 
comparative  disparagement,  which  false  state- 
ment has  caused  me  to  lose  customers,'  an 
action  is  maintainable." 

What  constitutes  unfair  competition  opens 
up  too  large  a  subject  for  any  considerable 
discussion  here.  It  is  enough  to  point  out  that 
the  border  line  must  be  overstepped  unques- 
tionably before  the  competition  will  be  held 
unfair.  One  or  two  cases  will  illustrate  the 
extent  to  which  competition  will  be  allowed  to 
go  before  the  court  will  interfere.  Perhaps 
the  most  interesting  is  White  v.  Mellin  (1895 


TYPES  OF  UNFAIR  COMPETITION      47 

A.  C.  154).  The  respondent  was  the  pro- 
prietor of  Mellin's  Food;  the  appellant  was 
the  proprietor  of  Vance's  Food.  The  original 
action  was  brought  for  the  circulation  of  the 
following  advertisement:  "Notice — The  pub- 
lic are  recommended  to  try  Dr.  Vance's  pre- 
pared food  for  infants  and  invalids,  it  being 
far  more  nutritious  and  healthful  than  any 
other  preparation  yet  offered."  The  keen 
business  insight  of  Lord  Herschell  was  well 
displayed  in  his  opinion  in  this  case,  when 
he  brushed  aside  all  the  distinctions  of  counsel 
with:  "Just  consider  what  a  door  would  be 
opened  if  this  were  permitted.  That  this  sort 
of  puffing  advertisement  is  in  use  is  notori- 
ous; and  we  see  rival  cures  advertised  for 
particular  ailments.  The  court  would  then 
be  bound  to  inquire,  in  an  action  brought, 
whether  this  ointment  or  this  pill  better  cured 
the  disease  which  it  was  alleged  to  cure — 
whether  a  particular  article  of  food  was  in 
this  respect  or  that  better  than  another.  In- 
deed, the  courts  of  law  would  be  turned  into 
a  machinery  for  advertising  rival  produc- 
tions by  obtaining  a  judicial  determination 
which  of  the  two  was  the  better." 

In  a  later  case  the  English  courts  again 


48      THE  CONTROL  OF  THE  MARKET 

took  the  position  that  they  would  permit 
competition  to  go  on  without  interference, 
unless  something  was  done  so  outrageous 
as  to  be  clearly  wrong.  In  Hubbuck  v. 
Wilkinson  (1899,  1  Q.  B.  86),  it  appeared 
that  the  plaintiffs  and  defendants  were  com- 
petitors in  the  paint  business,  and  that  de- 
fendants had  advertised  that,  as  the  result 
of  certain  paint  covering  experiments  con- 
ducted by  them,  their  paint  proved  superior 
in  every  respect.  The  plaintiffs  in  their 
complaint  alleged  that  the  reports  were  un- 
true, but  the  divisional  court  summarily  dis- 
missed the  complaint,  which  the  Court  of 
Appeal  held  it  was  right  in  doing,  guarding 
itself,  however,  in  this  wise:  "  It  is  not  neces- 
sary to  consider  how  the  case  would  have 
stood,  if  the  defendants  had  not  been  rival 
traders  simply  puffing  their  own  goods  and 
comparing  theirs  with  those  of  the  plaintiffs. 
If  the  defendants  had  made  untrue  state- 
ments concerning  the  plaintiffs'  goods  be- 
yond saying  that  they  were  inferior  to,  or, 
at  all  events,  not  better  than,  those  of  the 
defendants,  or  if  the  defendants  were  not 
rivals  in  trade  and  had  no  lawful  excuse  for 
what  they  said,  it  would  not  have  been  right 
summarily   to    strike   out    the    statement    of 


TYPES  OF  UNFAIR  COMPETITION      49 

claim    as    showing    no    reasonable    cause    of 
action." 

VII 

Intimidation  may  not  be  used  in  competi- 
tion to  frighten  a  customer  from  a  rival.  Our 
law  often  speaks  in  parables;  and  Keeble  v. 
Hickeringill  (11  East  574  note)  is  undoubt- 
edly one  of  the  most  significant  cases  in  our 
books.  The  plaintiff  there  declared  that  he 
was  lawfully  possessed  of  a  close  of  land 
called  Minott  Meadow,  a  decoy  pond,  to 
which  divers  wild  fowl  used  to  resort  and 
come:  and  the  plaintiff  had,  at  his  own  costs 
and  charges,  prepared  and  procured  divers 
decoy  ducks,  nets,  machines,  and  other  en- 
gines for  the  decoying  and  taking  of  the  wild 
fowl,  and  enjoyed  the  benefit  in  taking  them: 
the  defendant  knowing  which,  and  intending 
to  damnify  the  plaintiff  in  his  vivary,  and  to 
fright  and  drive  away  the  wild  fowl  used  to 
resort  thither,  and  deprive  him  of  his  profit, 
did  resort  to  the  head  of  the  said  pond  and 
vivary,  and  did  discharge  six  guns  laden  with 
gunpowder,  and  with  the  noise  and  stink 
of  the  gunpowder,  did  drive  away  the  wild 
fowl  then  being  in  the  pond,  whereby  the 
wild  fowl  were  frighted  away,  and  did  for- 


60      THE  CONTROL  OF  THE  MARKET 

sake  the  said  pond.  Lord  Holt,  then  Chief 
Justice,  made  of  this  suit  one  of  the  leading 
cases  in  our  law.  A  few  extracts  from  his 
opinion  will  show  the  fundamental  principles 
upon  which  it  is  based:  "  I  am  of  opinion 
that  this  action  doth  lie.  It  seems  to  be  new 
in  its  instance,  but  is  not  new  in  the  reason 
or  principle  of  it.  For,  first,  this  using  or 
making  a  decoy  is  lawful.  Secondly,  this 
employment  of  his  ground  to  that  use  is 
profitable  to  the  plaintiff,  as  is  the  skill  and 
management  of  that  employment.  As  to  the 
first,  every  man  that  hath  a  property  may 
employ  it  for  his  pleasure  and  profit,  as  for 
alluring  and  procuring  decoy  ducks  to  come 
to  his  pond.  Then  when  a  man  useth  his  art 
or  his  skill  to  take  them,  to  sell  and  dispose 
of,  for  his  profit;  this  is  his  trade;  and  he 
that  hinders  another  in  his  trade  or  live- 
lihood is  liable  to  an  action  for  so  hinder- 
ing him.  Where  a  violent  or  malicious  act 
is  done  to  a  man's  occupation,  profession, 
or  way  of  getting  a  livelihood;  there  an 
action  lies  in  all  cases.  But  if  a  man  doth 
him  damage  by  using  the  same  employment; 
as  if  Mr.  Hickeringill  had  set  up  another 
decoy  on  his  own  ground  near  the  plaintiff's, 
and  that  had  spoiled  the  custom  of  the  plain- 


TYPES  OF  UNFAIR  COMPETITION      51 

tiff,  no  action  would  lie,  because  he  had  as 
much  liberty  to  make  and  use  a  decoy  as  the 
plaintiff." 

Unfortunately,  because  of  labor  disputes, 
our  modern  books  are  filled  with  cases  in- 
volving force  in  competition;  but  fortunately 
our  courts  bid  fair  to  check  violence  in  labor 
competition,  as  they  are  curbing  fraud  in 
trade  competition.  A  recent  case  showing  the 
lengths  to  which  labor  unions  may  go  is 
Reinecke  Coal  Mining  Co.  v.  Wood  (112 
Fed.  477).  The  United  Mine  Workers  de- 
termined to  make  what  was  significantly 
called  a  "  striking  district "  out  of  certain 
territory  where  coal  mining  was  carried  on, 
with  the  policy  of  forcing  the  operators  there 
to  yield  to  their  demands  by  the  terror  in- 
spired by  the  tactics  adopted.  A  large  force 
was  encamped  in  the  immediate  neighbor- 
hood of  the  mines  in  that  territory,  and,  it 
was  plain  enough  that  by  the  terror  to  be 
thus  inspired,  they  designed  to  compel  non- 
union labor  employed  there  to  join  the  United 
Mine  Workers,  and  thereafter  to  strike  if  a 
certain  scale  of  prices  was  not  adopted  by 
their  employers.  It  should  be  noted  that 
there  was  no  strike  then  pending  at  any  of  the 
mines  in  the  district;  indeed,  there  appears  to 


52      THE  CONTROL  OF  THE  MARKET 

have  been  little  or  no  discontent  among  the 
laborers  employed  there.  Evans,  the  district 
judge,  treated  the  matter  with  the  seriousness 
that  the  occasion  demanded.  The  course  of 
his  reasoning  was  this:  "  It  cannot  be  that 
this  course  was  not  meant  to  be  an  attempt 
to  compel  the  complainant,  by  force  and  in- 
timidation, to  yield  to  the  defendants'  wishes 
and  demands.  The  encampment  of  armed 
men  in  the  vicinity  of  the  mines  was  not  meant 
for  gentle  persuasion  or  peaceable  argument. 
Peaceable  and  argumentative  persuasion  is 
entirely  admissible,  but  is  not  accomplished 
nor  intended  to  be  accomplished  in  that  man- 
ner. The  conduct  of  the  defendants,  on  the 
contrary,  had  all  the  elements  of  terror  and 
intimidation;  and  those  elements,  being  in- 
tentionally present,  were  indubitably  de- 
signed to  compel  the  complainant  to  accede 
to  demands  it  had  the  lawful  right  to  decline 
or  reject  at  its  option.  A  court  cannot  shut 
its  eyes  to  propositions  so  palpable." 


VIII 

It  should  be  noted  that  two  theories  pre- 
vail as  to  the  fundamental  basis  of  the  action 
for   unfair   competition.     According   to   the 


TYPES  OF  UNFAIR  COMPETITION      53 

older  view,  when  the  act  complained  of  is 
some  recognized  form  of  wrong  against  some- 
one, it  was  formerly  vaguely  felt  that  this 
explained  the  right  of  action  the  injured 
competitor  admittedly  had.  This  idea  showed 
itself  most  clearly  in  the  great  case  of  Allen 
V.  Flood  (1898  A.  C.  1),  in  the  House  of 
Lords  a  few  years  ago.  Briefly  the  facts  in 
that  case  were  that  one  Allen,  who  was  rep- 
resentative of  certain  workmen,  had  intention- 
ally procured  the  discharge  of  other  workmen, 
who  were  working  in  violation  of  the  policies 
of  the  union  he  represented,  among  whom 
was  one  Flood.  Although  a  great  majority 
of  the  justices  who  gave  opinions  upon  this 
case  from  first  to  last  were  in  favor  of  Flood, 
a  majority  of  the  House  of  Lords  found  for 
Allen.  How  the  matter  stood  in  the  minds  of 
this  majority  is  best  expressed  by  Lord  Mac- 
naughton  in  the  following  paragraph:  "  I  do 
not  think  that  there  is  any  foundation  in  good 
sense  or  in  authority  for  the  proposition  that 
a  person  who  suffers  loss  by  reason  of  another 
doing  or  not  doing  some  act  which  that  other 
is  entitled  to  do  or  to  abstain  from  doing  at 
his  own  will  and  pleasure,  whatever  his  real 
motive  may  be,  has  a  remedy  against  a  third 
person   who,    by   persuasion   or   some    other 


64      THE  CONTROL  OF  THE  MARKET 

means  not  in  itself  unlawful,  has  brought 
about  the  act  or  omission  from  which  the  loss 
comes,  even  though  it  could  be  proved  that 
such  person  was  actuated  by  malice  towards 
the  plaintiff,  and  that  his  conduct,  if  it  could 
be  inquired  into,  was  without  justification  or 
excuse." 

The  newer  view  of  this  situation  is  perhaps 
best  set  forth  in  the  recent  case  of  Jersey 
City  Printing  Co.  v.  Cassidy  (63  N.  J.  Eq. 
759),  where,  in  issuing  an  injunction  to  pro- 
tect an  employer  from  undue  interference  by 
his  striking  employees.  Vice  Chancellor 
Stevenson  said  in  part:  "  In  the  case  before 
this  court  the  Jersey  City  Printing  Company 
claims  the  right,  not  only  to  be  free  in  employ- 
ing labor,  but  also  the  right  that  labor  shall 
be  free  to  be  employed  by  it,  the  Jersey  City 
Printing  Company.  A  large  part  of  what 
is  most  valuable  in  modern  life  seems  to  de- 
pend more  or  less  directly  upon  '  probable 
expectancies.'  When  they  fail,  civilization, 
as  at  present  organized,  may  go  down.  As 
social  and  industrial  life  develops  and  grows 
more  complex  these  '  probable  expectancies  ' 
are  bound  to  increase.  It  would  seem  to  be 
inevitable  that  courts  of  law,  as  our  system  of 
jurisprudence  is  evolved  to  meet  the  growing 


TYPES  OF  UNFAIR  COMPETITION      55 

wants  of  an  increasingly  complex  social  order, 
will  discover,  define,  and  protect  from  undue 
interference  more  of  these  '  probable  expect- 


ancies.' '* 


IX 

We  have,  therefore,  these  differing  views 
of  the  nature  of  the  action  for  unfair  competi- 
tion, opposed  in  a  fundamental  way.  By 
what  may  be  called  the  earlier  theory,  it  is 
said  that  any  man  can  do  in  trade  whatever 
he  pleases  to  get  business  away  from  another, 
provided  he  does  nothing  illegal  in  itself. 
But,  by  what  is  obviously  the  current  phi- 
losophy of  the  matter,  the  beginning  is  made 
at  the  other  end,  by  saying  that  every  man 
engaged  in  business  has  a  right  to  pursue  his 
calling  freely,  and  that  consequently  any  in- 
terference with  this  business  of  his  by  another 
must  be  justified.  What  may,  therefore,  be 
carried  forward  into  the  subsequent  discus- 
sion of  various  unfair  practices  in  our  com- 
phcated  modern  commerce,  is  the  idea  that 
to  compete  as  one  wills  is  not  an  absolute 
right  in  our  law.  On  the  contrary,  competi- 
tion is  only  a  thing  permitted  by  the  State 
when  its  operation  is  for  the  best  interests  of 
established  society,  forbidden  if  it  is  carried 


56      THE  CONTROL  OF  THE  MARKET 

on  under  circumstances  prejudicial  to  the  so- 
cial order.  It  cannot  be  said,  therefore,  at 
the  outset  in  a  discussion  of  competition  by 
combinations,  such  as  this  is  largely  to  be, 
that,  when  one  man  has  an  absolute  right  to 
compete  as  he  chooses,  thereupon  ten  men 
acting  together  have  the  same  right  to  com- 
pete as  they  choose.  The  theory  which  has 
been  developed  here  cuts  in  back  of  all  this, 
by  denying  to  single  men  the  privilege  to 
compete  when  that  is  opposed  to  sound  policy. 
By  this  theory,  whenever  the  operation  of  a 
combination  is  proved  to  be  detrimental  to 
the  best  interests  of  society,  its  course  will  be 
held  illegal. 


NOTE 

It  would  be  impossible  to  cite  on  this  fly  leaf  even 
representative  cases  from  the  now  almost  innumerable 
cases  which  have  arisen  as  to  unfair  competition.  For 
the  purpose  of  directing  further  the  reading  of  any 
person  who  may  be  interested,  the  following  cases  where 
the  competition  was  held  fair  (although  close  to  the 
line)  are  selected  from  the  long  list  of  cases  of  this 
sort  which  might  be  cited.  For  example,  in  Evans  v. 
Harlow,  5  Q.  B.  624  (1844),  and  Young  v.  Macrae,  3 
B.  &  S.  264  (1850),  the  court  held  that  they  would  not 
give  judgment  against  a  merchant  who  was  using  rather 
extreme  comparative  statements  in  puffing  his  goods. 

In  Parson  v.  Gillespie  (1898),  A.  C.  239,  and  Van 
Camp  V.  Cruikshank,  90  Fed.  814  (1898),  the  court  re- 
fused to  enjoin  a  manufacturer  from  putting  out  his 
goods  in  similar  ways  to  those  used  by  other  manufac- 
turers, on  the  ground  that  these  were  ways  common  to 
the  trade.  And  in  AUejo  v.  Worsley  (1898),  1  Ch.  274 
and  West  Virginia  Transportation  Co.  v.  Standard  Oil 
Co.,  50  W.  Va.  611  (1902),  the  court  refused  to  con- 
sider the  damage  done  by  extreme  competition  as  a  basis 
for  recovery.  The  right  to  build  up  a  business  to  any 
size  at  the  expense  of  one's  rivals  is  sustained  in  Citi- 
zens* Light,  H.  &  P.  Co.  V.  Montgomery  Light  &  W. 
P.  Co.,  171  Fed.  553  (1909);  but  as  is  pointed  out  in 
Lubricating  Oil  Co.  v.  Standard  Oil  Co.,  42  Hun.  158 
(1886),  only  fair  means  can  be  used  in  such  aggrandize- 
ment. 


57 


CHAPTER  IV 

COERCION  BY  LABOR  UNIONS 


It  is  sometimes  said  that,  although  the 
working  classes  were  once  so  unfairly  treated 
by  the  law  that  they  could  do  nothing  for  their 
own  advancement,  now  the  workingmen  al- 
most constitute  a  privileged  class,  free  to  do 
pretty  much  as  they  may  choose.  To  one 
who  follows  the  diverse  currents  of  opinion 
that  appear  upon  the  surface  of  present-day 
discussion,  it  might  seem,  for  example,  that 
the  doctrine  of  the  open  shop  was  in  the 
greatest  danger,  if  indeed  the  doctrine  of 
the  closed  shop  was  not  already  established. 
One  who  fears  thus  forgets  the  law,  with 
which  is  the  final  decision.  Until  the  mass 
of  men  have  deliberately  changed  their 
theories  of  society  and  adopted  new  ones  in 
their  stead,  the  law  does  not  change  funda- 
mentally. From  ancient  times  our  law  has 
been  the  protection  of  the  freedom  of  the 
individual  against  the  oppression  of  the  com- 

68 


COERCION  BY  LABOR  UNIONS  59 

bination.  So  it  remains  to-day  in  the  midst 
of  alarms  the  steadfast  exponent  of  the  de- 
sire of  the  great  majority  of  men  for  the 
maintenance  of  industrial  liberty. 


n 

Our  law  against  combinations  goes  back 
beyond  legal  memory.  A  learned  editor  of 
one  of  the  Selden  Society's  publications  (1 
Pleas  of  the  Crown  125)  has  found  a  case  for 
us  as  early  as  the  year  1225  of  an  action  for 
interference  with  an  established  business  by 
conspiracy.  *'  The  Abbot  of  Lilleshall  com- 
plains that  the  bailiffs  of  Shrewsberry  do  him 
many  injuries  against  his  liberty,  and  that  they 
have  caused  proclamation  to  be  made  in  the 
town  that  none  be  so  bold  as  to  sell  any  mer- 
chandise to  the  Abbot  or  his  men  upon  pain 
of  forfeiting  ten  shillings,  so  that  Richard, 
the  bedell  of  the  said  town,  made  this  procla- 
mation by  their  orders.  And  the  bailiffs 
defend  [i.e.  deny]  all  of  it,  and  Richard  like- 
wise defends  all  of  it,  and  that  he  never 
heard  such  proclamation  made  by  any  one. 
It  is  considered  that  he  do  defend  himself 
twelve  handed,  and  do  come  on  Saturday 
with  his  law." 


60      THE  CONTROL  OF  THE  MARKET 

All  through  our  books  from  the  beginning 
there  are  cases  both  civil  and  criminal  upon 
combination  and  conspiracy,  as  things  apart 
from  individual  right  and  wrong.  Probably 
the  leading  case  is  Rex  v.  Journeymen  Tai- 
lors of  Cambridge  (8  Mod.  10).  One  Wise 
and  several  other  journeymen  tailors  were 
indicted  for  a  conspiracy  amongst  themselves 
to  raise  their  wages  and  were  found  guilty. 
On  motion  in  arrest  of  judgment  the  court 
said :  "  The  indictment,  it  is  true,  sets  forth 
that  the  defendants  refused  to  work  under 
the  wages  which  they  demanded;  but  al- 
though these  might  be  more  than  is  directed 
by  the  statute,  yet  it  is  not  for  the  refusing 
to  work,  but  for  conspiring  that  they  are 
indicted,  and  a  conspiracy  of  any  kind  is 
illegal,  although  the  matter  about  which 
they  conspired  might  have  been  lawful  for 
them,  or  any  of  them  to  do,  if  they  had  not 
conspired  to  do  it." 

Ill 

Well  down  into  the  nineteenth  century,  if 
workmen  acted  in  concert  in  any  way  against 
their  masters  they  were  in  danger  of  being 
held  conspirators  both  in  England  and 
America.    But  this  law  that  mere  combina- 


COERCION  BY  LABOR  UNIONS  61 

tion  was  a  conspiracy,  without  regard  to  acts 
or  objects,  gradually  became  obsolete.  Com- 
bination is  now  permitted  for  the  furtherance 
of  certain  ends  by  certain  means;  but  it  is 
not  true  to  say  that  it  is  permitted  for  any 
purpose  by  any  method.  It  is  necessary 
to-day,  therefore,  to  make  distinctions  before 
it  can  be  determined  what  plans  may  be  pur- 
sued by  a  combination  to  advance  its  interests. 
The  fundamental  distinction  in  the  modern 
law  is  well  shown  by  a  parley  between  Judge 
and  counsel  in  the  case  of  Re  Doolittle  and 
another,  strikers  (23  Fed.  544),  thus  re- 
ported:— "Mr.  Charles  C.  Allen.  Do  I 
understand  your  Honor  to  say  that  the  act 
of  striking,  merely  carrying  out  of  the 
strike — was  unlawful?  The  Court  (Judge 
Brewer)  :  It  is  not  the  mere  stopping  them- 
selves together,  but  it  is  preventing  the  own- 
ers of  the  road  from  managing  their  engines 
and  running  their  own  cars — that  is  where 
the  wrong  comes  in.  Anybody  has  a  right 
to  quit  work,  but  in  interfering  with  other 
persons  working,  and  preventing  the  owners 
of  railroad  trains  from  managing  those  trains 
as  they  see  fit — there  is  where  the  wrong 
comes  in." 

This   distinction   is   carried   to   its   logical 


62      THE  CONTROL  OF  THE  MARKET 

extent  in  the  case  of  the  sympathetic  strike — 
as  may  be  seen  in  Old  Dominion  Steamship 
Company  v.  McKenna  (30  Fed.  48).  This 
action  was  brought  to  recover  $20,000  dam- 
ages, alleged  to  have  been  sustained  by  the 
plaintiff  through  the  unlawful  action  of  the 
defendants  in  a  strike  of  longshoremen,  and 
in  their  attempt  to  boycott  the  plaintiff  in 
its  business.  The  defendants  styled  them- 
selves the  Executive  Board  of  the  Ocean 
Association  of  the  Longshoremen's  Union. 
Not  being  in  plaintiff's  employ,  and  without 
any  legal  justification  so  far  as  appeared, 
they  procured  plaintiff's  workmen  in  New 
York  and  in  southern  ports  to  quit  work  in 
a  body,  until  it  should  accede  to  the  de- 
fendants' demands  and  pay  southern  negroes 
the  same  wages  as  New  York  Longshore- 
men. Mr.  Justice  Brown  held  that  such  un- 
warrantable interference  by  these  combined 
defendants  constituted  an  invasion  of  the 
business  right  of  the  steamship  company. 
His  reasoning  is  thoroughgoing,  as  the  fol- 
lowing extract  will  show:  "Associations  have 
no  more  right  to  inflict  injury  upon  others 
than  individuals  have.  All  combinations  and 
associations  designed  to  coerce  workmen  to 
become  members,   or  to  interfere   with,   ob- 


COERCION  BY  LABOR  UNIONS  63 

struct,  vex,  or  annoy  them  in  working,  or  in 
obtaining  work,  because  they  are  not  mem- 
bers, or  in  order  to  induce  them  to  become 
members,  or  designed  to  prevent  employers 
from  making  a  just  discrimination  in  the 
rate  of  wages  paid  to  the  skillful  and  to  the 
unskillful,  to  the  diligent  and  to  the  lazy, 
to  the  efficient  and  to  the  inefficient,  and 
all  associations  designed  to  interfere  with 
the  perfect  freedom  of  employers  in  the 
proper  management  and  control  of  their  law- 
ful business,  or  to  dictate  in  any  particular 
the  terms  upon  which  their  business  shall  be 
conducted,  by  means  of  threats  of  injury  or 
loss,  by  interference  with  their  property  or 
traffic,  or  with  lawful  employment  of  other 
persons,  or  designed  to  abridge  any  of  these 
rights, — are  pro  tanto  illegal  combinations 
or  associations;  and  all  acts  done  in  further- 
ance of  such  intentions  by  such  means,  and 
^  accompanied  by  damage,  are  actionable." 
By  the  present  law,  then,  mere  striking 
is  not  in  itself  wrong;  and,  therefore,  merely 
threatening  to  strike  is  permissible  in  itself. 
But  on  the  other  hand,  the  trades  union  is 
always  put  to  its  justification  whenever  a 
strike  is  called  or  planned.  Individuals  who 
interfere  with  the  existing  relations  of  others 


64      THE  CONTROL  OF  THE  MARKET 

must  show  some  affirmative  reason  in  public 
policy  why  they  should  be  excused;  and  by 
the  same  theory  whenever  the  operations  of 
a  combination  are  proved  to  be  subversive  of 
the  true  interests  of  society,  its  actions  will 
be  stopped.  Moreover,  the  interests  of  the 
strikers  must  be  directly  involved  in  order 
to  justify  their  intermeddling.  In  a  sym- 
pathetic strike,  as  has  been  seen,  anything 
that  they  may  do  will  be  held  illegal.  But 
if  the  strike  is  for  their  own  immediate  bet- 
terment, for  shorter  hours  or  for  higher 
wages,  then  their  striking,  being  justifiable 
in  itself,  the  question  arises  as  to  what 
methods  they  may  be  permitted  to  employ  to 
keep  their  places  open.  It  is  obvious  that 
distinctions  must  be  taken  here  as  to  the 
methods  which  it  is  wise  to  permit  in  com- 
petition by  combination;  and  indeed  there 
may  well  be  a  departure  from  the  rules  which 
have  been  laid  down  as  to  the  methods  which 
individuals   may  employ  in  competition. 


IV 

The  clearest  illustration  of  this  difference 
is  the  boycott.  About  the  year  1880,  one 
Captain   Boycott   was   a   farmer   of    Lough 


COERCION  BY  LABOR  UNIONS         65 

Mark  in  the  district  of  Connemara.  This 
Boycott  was  also  agent  of  the  principal  land- 
lord, Lord  Erne;  and  in  his  capacity  as 
agent  in  that  year  had  served  notice  upon 
several  of  the  tenants.  The  result  is  a  matter 
of  history.  The  population  of  the  region 
for  miles  around  resolved  to  have  nothing  to 
do  with  him,  and,  as  far  as  they  could  prevent 
it,  not  to  allow  anyone  else  to  have  anything 
to  do  with  him.  His  laborers  fled  from  him; 
and  none  would  come  in  their  places.  No 
one  would  supply  him  with  food;  he  was  cut 
off  from  every  near  base  of  supplies.  No 
one  would  speak  with  him;  he  was  excom- 
municated from  all  intercourse  with  his  fel- 
lows. Then  the  government  sent  a  force  of 
soldiers  to  Lough  Mark,  and  under  their 
protection  the  Boycotts  returned  to  their 
position  as  citizens  in  a  civilized  community. 
Thus  the  episode  closed,  but  the  language  had 
gotten  now  a  new  word — boycott — to  com- 
memorate that  event.  A  new  danger  had 
been  made  known  which  spread  terror 
throughout  society.  A  new  condition,  there- 
fore, confronted  the  law,  requiring  its  protec- 
tion. 

The  leading  case  upon  boycott  in  America 
is  Crump  v.  Commonwealth    (84  Va.  927). 


66      THE  CONTROL  OF  THE  MARKET 

In  this  case  the  strikers  dragged  the  whole 
community  into  their  dispute.  They  pub- 
lished a  blacklist  upon  which  they  put  the 
names  of  every  hotel,  boarding  house,  trades- 
man, or  shopkeeper  who  dealt  with  their 
former  employers  in  any  way,  or  who  had 
anything  to  do  with  the  new  employees. 
Finally  matters  came  to  such  a  pass  that 
the  ringleaders  were  arrested;  and,  being 
found  guilty  by  the  jury,  they  appealed 
upon  the  points  of  law  to  the  higher  court. 
In  dismissing  the  appeal  Mr.  Justice  Faunt- 
leroy  spoke  very  sharply :  "  It  was  proved 
that  the  conspirators  declared  it  their  set 
purpose  and  persistent  effort  to  '  crush ' 
Baughman  Brothers;  that  the  minions  of  the 
boycott  committee  dogged  the  firm  in  all 
their  transactions;  followed  their  delivery 
wagons,  secured  the  names  of  their  patrons; 
and  used  every  means  short  of  actual  physical 
force  to  compel  them  to  cease  dealing  with 
Baughman  Brothers — thereby  causing  them 
to  lose  from  one  hundred  and  fifty  to  two 
hundred  customers  and  ten  thousand  dollars 
of  net  profit.  The  acts  alleged  and  proved 
in  this  case  are  unlawful  and  incompatible 
with  the  prosperity,  peace,  and  civilization 
of  the  country;  and,  if  they  can  be  perpe- 


COERCION  BY  LABOR  UNIONS         67 

trated  with  impunity,  by  combinations  of  ir- 
responsible cabals  or  cliques,  there  will  be 
the  end  of  government,  and  of  society  itself. 
Freedom — individual  and  associated — is  the 
boon  and  boasted  policy  and  peculium  of 
our  country;  but  it  is  liberty  regulated  by 
law;  and  the  motto  of  the  law  is:  Sic  utere 
tuOj  ut  aJienum  non  laedas." 


In  the  ruling  case  in  the  British  Empire 
to-day,  Quinn  v.  Leathem  (1902  A.  C.  495), 
we  have  one  of  the  clearest  examples  of  the 
sort  of  pressure  which  it  must  be  obvious 
that  a  trades  union  should  be  forbidden  to 
use,  even  to  advance  its  own  interests.  The 
complainant  in  that  case  was  a  butcher  en- 
gaged in  business  near  Belfast.  His  em- 
ployees organized  a  union  to  which  they 
refused  to  admit  one  Dickie,  a  foreman;  they 
later  demanded  of  the  plaintiff  that  he  dis- 
miss Dickie.  Upon  the  plaintiff's  refusal  to 
do  this  the  defendants  representing  the  union 
went  to  one  Munce,  who  bought  meat  of  the 
plaintiff,  and  warned  him  that  unless  he 
stopped  buying  while  the  trouble  was  on,  his 
own  men  would  be  called  out  next.     Munce 


68      THE  CONTROL  OF  THE  MARKET 

at  last  yielded  to  this  coercion,  and  notified 
plaintiff  to  send  no  more  meat  until  he  set- 
tled with  his  men.  This  interference  with 
his  business  relations  was  the  cause  of  the 
action,  in  which  damages  to  the  trade  were 
claimed.  The  House  of  Lords,  notwith- 
standing the  contrary  tendencies  of  Allen  V. 
Flood,  held  for  the  plaintiff.  The  best 
opinion  was  that  of  Lord  Lindley,  who 
handled  the  question  with  characteristic 
method:  "As  to  the  rights  of  the  plaintiff — 
he  had  the  ordinary  rights  of  a  British  sub- 
ject. He  was  at  liberty  to  earn  his  own 
living  in  his  own  way,  provided  he  did  not 
violate  some  special  law  prohibiting  him  from 
so  doing,  and  provided  he  did  not  infringe 
the  rights  of  other  people.  This  liberty  in- 
volved liberty  to  deal  with  other  persons  who 
were  willing  to  deal  with  him.  This  liberty 
is  a  right  recognized  by  law;  its  correlative 
is  the  general  duty  of  everyone  not  to  pre- 
vent the  free  exercise  of  this  liberty,  except 
so  far  as  his  own  liberty  of  action  may 
justify  him  in  so  doing.  But  a  person's  lib- 
erty or  right  to  deal  with  others  is  nugatory, 
unless  they  are  at  liberty  to  deal  with  him  if 
they  choose  to  do  so.  Any  interference  with 
their  liberty  to  deal  with  him  affects  him." 


COERCION  BY  LABOR  UNIONS         69 

In  current  discussion  an  attempt  is  some- 
times made  to  distinguish  between  this  ex- 
treme case  of  secondary  boycott,  which  has 
just  been  illustrated,  and  the  lesser  dis- 
turbance created  by  the  primary  boycott,  as 
it  is  called,  where  only  the  members  of  the 
affiliated  unions  are  worked  upon  to  break 
off  their  business  relations  with  dealers  who 
persist  in  continuing  to  deal  with  the  con- 
cern against  which  their  attack  is  directed. 
But  almost  all  courts  find  this  sort  of  boy- 
cott practically  as  dangerous  to  the  industrial 
peace  as  the  other.  In  Barr  v.  Essex  Trades 
Council  (53  N.  J.  Eq.  301)  the  Council  of 
the  affiliated  trades  had  exhorted  its  mem- 
bers in  this  wise:  "  Friends,  one  and  all,  leave 
this  council-boycotting  '  Newark  Times.' 
Cease  buying  it.  Cease  handling  it.  Cease 
advertising  in  it.  Keep  the  money  of  fair 
men  moving  only  among  fair  men.  Boycott 
the  boycotter  of  organized  fair  labor."  The 
New  Jersey  chancery  court  thought  that  it 
would  be  dangerous  to  industrial  society  to 
permit  such  appeals  to  go  unchallenged. 
Vice  Chancellor  Green  discussed  the  problem 
broadly  thus:  "The  freedom  of  business  ac- 
tion lies  at  the  foundation  of  all  commercial 
and  industrial  enterprises — men  are  willing 


70      THE  CONTROL  OF  THE  MARKET 

to  embark  capital,  time,  and  experience  there- 
in, because  they  can  confidently  assume  that 
they  will  be  able  to  control  their  affairs 
according  to  their  own  ideas,  when  the  same 
are  not  in  conflict  with  law.  If  this  privilege 
is  denied  them,  if  the  courts  cannot  protect 
them,  if  the  management  of  business  is  to 
be  taken  from  the  owner  and  assumed  by, 
it  may  be,  irresponsible  strangers,  then  we 
will  have  come  to  the  time  when  capital  will 
seek  other  than  industrial  channels  for  in- 
vestments, when  enterprise  and  development 
will  be  cripples,  when  interstate  railroads, 
canals,  and  means  of  transportation  will  be- 
come dependent  on  the  paternalism  of  the 
national  government,  and  the  factory  and  the 
workshop  subject  to  the  uncertain  chances 
cooperative  systems." 


VI 

As  our  law  stands,  therefore,  in  some  in- 
stances concerted  action  is  permitted,  while 
against  many  kinds  of  joint  action  redress 
may  be  had.  It  has  been  seen  that  simple 
striking  is  permitted  in  certain  cases;  a  com- 
bination of  laborers  may,  for  example,  de- 
mand higher  wages,  and  then  leave  in  a  body 


COERCION  BY  LABOR  UNIONS  71 

if  the  increase  is  not  granted.  On  the  other 
hand,  it  has  been  seen  that  workmen  may 
not  bring  their  combined  force  to  bear  upon 
persons  who  have  no  part  in  the  dispute  to 
induce  them  not  to  deal  with  their  former 
employers.  The  problem  of  the  legality  of 
the  use  of  its  great  power  by  the  trade  union 
to  force  non-union  men  out  of  the  same  em- 
ployment lies  somewhere  between  these  two 
extremes.  As  this  is  one  of  the  most  im- 
portant of  modem  questions,  it  might  be 
well  to  state  the  leading  cases  with  consider- 
able detail,  so  that  there  may  be  clear  appre- 
ciation of  the  precise  issue  involved. 

In  Lucke  v.  Assembly  (77  Md.  396),  we 
have  a  rather  aggravated  case  of  unionizing 
a  shop.  The  plaintiff  was  a  non-union  man; 
he  was  non-union  against  his  will,  as  it  were, 
because  the  Assembly  had  repeatedly  re- 
fused to  take  him  in,  although  he  had  several 
times  applied  for  membership.  Later  the 
Assembly  demanded  of  their  employers,  that 
they  discharge  this  non-union  man,  Lucke. 
Rosenfeld  Brothers  could  not  withstand  the 
pressure;  and  they  discharged  Lucke  at  this 
dictation.  Lucke  then  sued  the  Assembly 
for  damages  for  the  loss  of  his  job;  and  he 
was  successful  in  his  suit.     Upon  the  final 


72      THE  CONTROL  OF  THE  MARKET 

appeal  Mr.  Justice  Roberts  gave  these  as 
the  reasons:  "  In  this  case,  we  think  the 
interference  of  the  appellee  was  in  law 
malicious  and  unquestionably  wrongful.  The 
appellant  was  a  man  of  family,  a  good  work- 
man, engaged  in  a  lawful  pursuit,  perform- 
ing his  duties  in  an  entirely  satisfactory  man- 
ner, without  objection  in  any  respect,  and 
willing  and  desirous  of  becoming  a  member 
of  the  appellee  if  an  opportunity  had  been 
afforded  him.  He  was  not  able  to  obtain 
membership  with  the  appellee,  nor  was  he 
permitted  to  continue  his  work  with  his  em- 
ployers, who  would  gladly  have  retained  him 
in  their  service,  if  they  could  have  done  so 
without  loss  or  embarrassment  to  themselves. 
If,  therefore,  the  appellee  sought  to  bring 
about  the  discharge  of  the  appellant  under 
the  circumstances  detailed  in  the  evidence, 
if  not  malicious  it  was  certainly  wrongful, 
and  by  so  doing  it  has  invaded  the  legal 
rights  of  the  appellant  for  which  an  action 
properly  lies." 

A  recent  case  in  point  is  even  more  thor- 
oughgoing in  its  denunciation  of  these  at- 
tempts by  the  unions  to  force  non-union  men 
out  of  the  same  employment.  In  Erdman  v. 
Mitchell    (207  Pa.   St.   79),  there  appeared 


COERCION  BY  LABOR  UNIONS  73 

in  evidence  a  series  of  labor  difficulties  in  the 
construction  of  a  building  too  involved  to 
relate  fully  here.  Finally  the  Central  Union 
showed  its  hand,  and  threatened  a  general 
strike  unless  certain  men  engaged  on  the 
work,  who  were  not  members  of  an  affiliated 
union,  should  be  immediately  laid  off.  An 
application  was  made  in  time  for  an  injunc- 
tion, which  the  lower  court  granted  and  the 
upper  court  confirmed.  Mr.  Justice  Dean 
said,  in  granting  the  injunction:  "  Trades 
unions  may  cease  to  work  for  reasons  satis- 
factory to  their  members,  but  if  they  combine 
to  prevent  others  from  obtaining  work  by 
threats  of  a  strike,  or  combine  to  prevent  an 
employer  from  employing  others  by  threats  of 
a  strike,  they  combine  to  accomplish  an  un- 
lawful purpose — a  purpose  as  unlawful  now 
as  it  ever  was,  though  not  punishable  by  in- 
dictment. Such  combination  is  a  despotic  and 
tyrannical  violation  of  the  indefeasible  right 
of  labor  to  acquire  property,  which  courts  are 
bound  to  restrain.  It  is  argued  that  de- 
fendants, either  individually  or  by  organiza- 
tion, have  the  right  now  to  peaceably  per- 
suade plaintiffs  and  others  not  to  work,  and 
their  employer  not  to  hire  them.  So  they 
have.     It  is  further  argued  that  they  can 


74      THE  CONTROL  OF  THE  MARKET 

quit  work  when  they  choose.  So  they  can. 
But  neither  of  these  suggested  eases  is  the 
one  before  us.  Here  a  strike  on  a  large 
building  was  declared  because  plaintiffs 
would  not  join  the  particular  society.  The 
declared  purpose  of  the  strike  was  to  cause 
loss  of  employment  to  plaintiffs  because  they 
would  not  join  the  Alhed  Building  Trades, 
and  chose  to  remain  faithful  to  their  own 
union,  The  Plumbers'  League." 

The  cases  brought  up  for  discussion  in  this 
section  are  undoubtedly  less  extreme  than 
the  cases  under  consideration  in  the  preceding 
section.  It  may  be  admitted  that  in  the 
case  of  unionizing,  the  ultimate  motive  of 
the  union  is  to  advance  its  own  interests;  but 
so  it  is  in  boycotting.  In  boycotting  the 
end  was  held  not  to  justify  the  means;  and 
this  may  well  enough  be  true  of  unionizing. 
The  principal  question  is,  then,  whether  this 
sort  of  concerted  action  is  to  be  held  justi- 
fiable or  not.  In  this  respect  a  difference 
may  be  urged  between  boycotting  and  union- 
izing; it  may  be  said  that  in  boycotting  the 
methods  employed  are  indirect,  and  much 
unnecessary  damage  is  therefore  done  to  third 
parties;  while  in  unionizing  it  may  be  claimed 
that  the  methods  are  direct,  and  that  there 


COERCION  BY  LABOR  UNIONS  76 

is  no  unnecessary  damage.  But  the  fact 
remains  that  both  in  the  case  of  boycotting 
and  in  the  case  of  unionizing  we  see  the 
resistless  force  of  numbers  employed  against 
the  individuals  attacked.  The  fear  of  this 
lies  at  the  bottom  of  all  of  our  laws  against 
conspiracy    from   time   immemorial. 


vn 

At  least  it  may  be  made  a  working  hy- 
pothesis that  in  unionizing  we  have  the  legal 
wrong  of  conspiracy  against  those  forced  out 
of  the  employment.  A  case  so  extreme  that 
almost  all  courts  would  agree  upon  it,  is 
Curran  v.  Galen  (152  N.  Y.  33).  It  ap- 
peared that  in  Rochester  there  was  an  agree- 
ment between  the  Ale  Brewers'  Association 
and  the  Brewery  Workingmen's  Assembly 
that  no  person  not  a  member  of  the  associa- 
tion should  be  retained  in  the  employment  of 
any  member  of  the  association.  The  plain- 
tiff got  employment  in  one  of  the  breweries, 
but  declined  to  join  the  union.  The  whole 
opinion  of  the  Court  of  Appeals  follows: 
"  The  organization  of  the  local  assembly  in 
question  by  the  workingmen  in  the  breweries 
of  the  city  of  Rochester  may  have  been  per- 


76      THE  CONTROL  OF  THE  MARKET 

fectly  lawful  in  its  general  purposes  and 
methods  and  may,  otherwise,  wield  its  power 
and  influence  usefully  and  justly,  for  all 
that  appears.  It  is  not  for  us  to  say,  nor  do 
we  intend  to  intimate,  to  the  contrary;  but 
so  far  as  a  purpose  appears  from  the  defense 
set  up  to  the  complaint  that  no  employee  of 
a  brewing  company  shall  be  allowed  to  work 
for  a  longer  period  than  four  weeks,  without 
becoming  a  member  of  the  Workingmen's 
Local  Assembly,  and  that  a  contract  between 
the  local  assembly  and  the  Ale  Brewers' 
Association  shall  be  availed  of  to  compel 
the  discharge  of  the  independent  employee, 
is,  in  effect,  a  threat  to  keep  persons  from 
working  at  the  particular  trade  and  to  pro- 
cure their  dismissal  from  employment.  While 
it  may  be  true,  as  argued,  that  the  contract 
was  entered  into,  on  the  part  of  the  Ale 
Brewers'  Association,  with  the  object  of 
avoiding  disputes  and  conflicts  with  the 
workingmen's  organization,  that  feature  and 
such  an  intention  cannot  aid  the  defense,  nor 
legalize  a  plan  of  compelling  workingmen 
not  to  join  it,  at  the  peril  of  being  deprived 
of  their  employment  and  of  the  means  of 
making  a  livelihood." 

Plant  V,  Woods    (176  Mass.   492)    shows 


COERCION  BY  LABOR  UNIONS         77 

one  of  the  latest  developments  in  this  general 
problem.  This  was  a  case  of  a  contest  for 
supremacy  between  two  labor  unions  of  the 
same  craft,  having  substantially  the  same 
constitution  and  by-laws.  The  chief  differ- 
ence between  them  was  that  the  plaintiff 
union  was  affiliated  with  one  national  organi- 
zation, while  the  defendant  union  was  affiliated 
with  another.  It  appeared  that  the  members 
of  the  defendant  union  declared  "  all  painters 
not  affiliated  with  the  Baltimore  headquarters 
to  be  non-union  men,"  and  voted  to  "  notify 
the  bosses  "  of  that  declaration.  This  action 
was  for  an  injunction  to  prevent  threats 
being  made  in  pursuance  of  this  vote.  Mr. 
Justice  Hammond  stated  the  following  rea- 
sons of  the  court  for  confirming  the  injunc- 
tion against  the  defendants :  "  It  is  to  be  ob- 
served that  this  is  not  a  case  between  the 
employer  and  the  employed,  or,  to  use  a 
hackneyed  expression,  between  capital  and 
labor,  but  between  laborers  all  of  the  same 
craft,  and  each  having  the  same  right  as 
any  one  of  the  others  to  pursue  his  calling. 
In  this,  as  in  every  other  case  of  equal  rights, 
the  right  of  each  individual  is  to  be  exercised 
with  due  regard  to  the  similar  right  of  all 
others,  and  the  right  of  one  must  be  said  to 


78      THE  CONTROL  OF  THE  MARKET 

end  where  that  of  another  begins.  The  right 
involved  is  the  right  to  dispose  of  one's  labor 
with  full  freedom.  This  is  a  legal  right,  and 
it  is  entitled  to  legal  protection." 

The  majority  of  courts  thus  believe  thut 
an  organized  union  should  not  be  allowed  to 
work  its  will,  that  it  would  mean  disruption 
of  the  industrial  order  if  a  union  could  be 
permitted  to  dictate  who  should  work  and 
who  should  not.  As  a  matter  of  law,  the 
question  whether  the  members  of  a  union  are 
liable  when  they  demand  that  their  shop  be 
unionized  depends  upon  whether  the  courts 
will  find  some  basis  for  justification.  But 
although  the  public  policy  is  doubtful,  most 
courts  seem  to  be  convinced  that  to  allow 
unionizing  would  be  prejudicial  to  the  best 
interests  of  society.  The  public  wants  the 
best  services  that  can  be  gotten  at  the  lowest 
wages  that  will  be  accepted.  If  we  are  to 
believe  much  testimony  that  is  brought  for- 
ward in  current  discussion,  unionizing  means 
less  efficient  services  and  increasing  wages. 
This,  then,  is  an  instance  for  the  assertion 
of  the  general  policy  of  the  law  against  com- 
bination in  restraint  of  trade.  Our  general 
law  is,  of  course,  opposed  to  schemes  to  con- 
trol the  market  in  any  such  way. 


COERCION  BY  LABOR  UNIONS  79 

VIII 

There  is  some  dissent  to  these  prevalent 
doctrines;  and  in  order  that  the  discussion 
may  be  quite  fair  it  is  necessary  to  give  this 
minority  a  chance  to  be  heard.  The  principal 
case  on  the  other  side  is  undoubtedly  National 
Protective  Association  v.  Cummings  (170  N. 
Y.  315).  The  facts  in  this  case  as  they  were 
brought  out  at  the  trial  were  somewhat  com- 
plicated, as  the  final  developments  in  the  in- 
dustrial organization  have  become  so  complex. 
The  complainants  were  a  formal  association 
themselves,  who  sued  both  collectively  and 
individually;  the  defendants  were  also  an 
association  and  the  individual  members  of 
it.  The  defendant  association  wanted  to 
put  its  men  at  work  upon  certain  works  in 
the  place  of  certain  men  belonging  to  the 
rival  association.  They  were  in  a  position 
to  enforce  their  demands,  as  they  had  strong 
affiliations  with  the  building  trades  in  New 
York.  The  trial  court  found  that  the  walk- 
ing delegate  of  the  older  association  threat- 
ened to  cause  a  general  strike  against  the 
members  of  the  newer  association,  wherever 
he  found  them  at  work  upon  the  same  jobs 
with  his  men.     The  opinion  in  this  case  de- 


80      THE  CONTROL  OF  THE  MARKET 

serves  respectful  consideration,  as  it  is  by 
former  Chief  Justice  Parker;  "but  the  basis 
of  his  opinion  is  the  obsolete  argument  that 
any  single  man  may  quit  work  alone.  "  The 
principles  quoted  above  recognize  the  legal 
right  of  members  of  an  organization  to  strike, 
that  is,  to  cease  working  in  a  body  by  pre- 
arrangement  until  a  grievance  is  redressed, 
and  they  enumerate  some  things  that  may  be 
treated  as  the  subject  of  a  grievance,  namely 
the  desire  to  obtain  higher  wages,  shorter 
hours  of  labor,  or  improved  relations  with 
their  employers,  but  this  enumeration  does 
not,  I  take  it,  purport  to  cover  all  the  ground 
which  will  lawfully  justify  members  of  an 
organization  refusing  in  a  body  and  by  pre- 
arrangement,  to  work.  The  enumeration  is 
illustrative  rather  than  comprehensive,  for 
the  object  of  such  an  organization  is  to 
benefit  all  its  members;  and  it  is  their  right 
to  strike,  if  need  be,  in  order  to  secure  any 
lawful  benefit  to  the  several  members  of  the 
organization  as,  for  instance,  to  secure  the  re- 
employment of  a  member  they  regard  as  hav- 
ing been  improperly  discharged,  and  to  se- 
cure from  an  employer  of  a  number  of  them 
employment  for  other  members  of  their  or- 
ganization who  may  be  out  of  employment, 


COERCION  BY  LABOR  UNIONS  81 

although  the  effect  will  be  to  cause  the  dis- 
charge of  other  employees  who  are  not  mem- 
bers." 

Another  case  that  plainly  holds  for  the 
union  is  Clemmitt  v.  Watson,  (14  Ind. 
App.  38).  In  this  case,  a  body  of  employees 
in  a  coal  mine  organized  as  a  union  and  de- 
manded the  discharge  of  a  certain  man  not 
a  member  of  their  union.  The  owners  refus- 
ing to  discharge  him,  a  strike  was  called; 
whereupon  the  employers  yielded,  and  the 
man  was  discharged.  A  suit  was  thereupon 
brought  by  the  man  forced  out  to  recover 
damages  caused  by  the  conspiracy.  The  gist 
of  Mr.  Justice  Garvin's  opinion  was  this: 
"  There  is  no  law  to  compel  one  man  or  any 
body  of  men  to  work  for  or  with  another  who 
is  personally  obnoxious  to  them.  We  cannot 
believe  it  to  be  in  accordance  with  the  spirit 
of  our  institutions  or  the  law  of  the  land  to 
say  that  a  body  of  workmen  must  respond  in 
damages  because  they,  without  malice  or  any 
evil  motive,  peaceably  and  quietly  quit  work 
which  they  are  not  required  to  continue, 
rather  than  remain  at  work  with  one  who  is 
for  any  reason  unsatisfactory  to  them." 

Whatever  weight  may  be  given  to  these 
two   decisions   as   authority,    they   represent 


82      THE  CONTROL  OF  THE  MARKET 

the  view  of  the  minority;  for  the  contrary 
holding  now  undoubtedly  has  the  majority. 
It  is,  therefore,  the  general  American  law 
that  legal  wrong  is  done  by  a  union  in  pro- 
curing the  discharge  of  a  non-union  man. 
Even  if  their  motive  is  self-interest,  to  get  all 
the  work  for  their  own  members,  still  most 
courts  hold  that  the  union  cannot  be  allowed 
to  use  the  force  of  its  members  to  crush  the 
non-union  man.  The  law  of  conspiracy  from 
time  immemorial  has  protected  the  single  man 
against  the  attack  of  the  combination.  This 
is  a  modern  instance  for  its  application.  Any 
discussion  which  leaves  out  the  fact  of  con- 
spiracy, and  defends  the  union  upon  the 
basis  of  the  permission  given  individuals  to 
compete  as  they  please,  misses  the  real  point 
upon  which  the  issue  turns.  To  maintain 
free  competition  in  general,  the  courts  must 
prevent  suppression  of  competition  by  the 
action  of  the  combination. 

IX 

To  suggest  further  distinctions,  two  of  the 
most  recent  cases,  to  a  certain  extent  op- 
posite in  tendency,  should  be  considered. 
One,  Pickett  v.  Walsh  (192  Mass.  572),  is 
the  most  recent  of  the  long  line  of  excellent 


COERCION  BY  LABOR  UNIONS  83 

decisions  in  Massachusetts  dealing  with  the 
respective  rights  of  capital  and  labor.  The 
plaintiffs  were  brick  and  stone  pointers;  the 
defendants  were  officers  and  members  of 
bricklayers'  unions  and  stone  masons'  unions. 
One  ground  of  complaint  was  that  the  plain- 
tiff was  forced  out  of  employment  by  the 
threat  of  the  defendant  unions  that  they 
would  do  no  laying  unless  the  pointing  was 
done  by  their  members.  This  policy  Mr. 
Justice  Loring  held  justifiable:  "  It  was  with- 
in the  rights  of  these  unions  to  compete  for 
the  work  of  doing  the  pointing,  and  in  the 
exercise  of  their  right  of  competition  to  re- 
fuse to  lay  brick  and  set  stone  unless  they 
were  given  the  work  of  pointing  them  when 
laid."  The  other  ground  of  complaint  was 
that  the  unions,  in  order  to  get  these  plaintiffs 
discharged  from  one  job,  threatened  a  strike 
upon  other  jobs.  The  court  held  that  this 
was  not  justifiable:  "That  strike  has  in  it 
an  element  like  that  in  the  sympathetic  strike, 
in  a  boycott,  and  in  blacklisting,  namely, — 
It  is  a  refusal  to  work  for  A,  with  whom 
the  strikers  have  no  dispute,  for  the  purpose 
of  forcing  A  to  force  B  to  yield  to  the 
strikers'  demands.  In  our  opinion  organized 
labor's  right  of  compulsion  and  coercion  is 


84.   THE  CONTROL  OF  THE  MARKET 

limited  to  strikes  on  persons  with  whom  the 
organization  has  a  trade  dispute;  or  to  put 
it  in  another  way,  we  are  of  opinion  that  a 
strike  on  A  with  whom  the  striker  has 
no  trade  dispute  to  compel  A  to  force  B  to 
yield  to  the  strikers'  demands  is  an  unjusti- 
fiable interference  with  the  right  of  A  to 
pursue  his  calling  as  he  thinks  best." 

The  other  case  in  mind  is  Pierce  v.  Stable- 
men's Union  (156  Cal.  70).  This  was  an 
injunction  procured  in  the  course  of  a  strike 
called  to  make  the  plaintiff  unionize  his 
stable.  Unionizing  being  legal  in  itself  in 
California,  the  upper  court  was  clear  that  no 
injunction  should  be  so  broad  as  to  prevent 
the  bringing  about  of  this  result  by  mere 
representations,  even  when  amounting  to 
coercion.  The  real  issue  to  their  mind  was 
whether  boycotting  and  picketing  should  be 
allowed.  As  for  the  boycotting  feature,  the 
California  court  takes  its  position  with  the 
small  minority  which  permit  it  in  every  form, 
primary  as  well  as  secondary.  "  Each  rests 
upon  the  right  of  the  union  to  withdraw  its 
patronage  from  its  employer  and  to  induce 
by  any  fair  means  all  persons  to  do  the 
same;  and  in  the  exercise  of  those  means,  as 
the  union  would  have  the  unquestioned  rights 


COERCION  BY  LABOR  UNIONS  85 

to  withhold  their  patronage  from  a  third  per- 
son who  continued  to  deal  with  their  em- 
ployer, so  they  have  the  miquestioned  right 
to  notify  such  third  person  that  they  will 
withdraw  their  patronage  if  he  continues  so 
to  deal."  But  as  to  picketing,  the  California 
court  unexpectedly  allies  itself  with  the  ma- 
jority of  courts,  which  forbid  all  picketing, 
"  peaceful  "  as  well  as  "  violent."  "  A  picket 
in  its  very  nature,"  said  Mr.  Justice  Henshaw 
"  tends  to  accomplish  and  is  designed  to  ac- 
complish these  very  things.  It  tends  to  and 
is  designed  by  physical  intimidation  to  deter 
other  men  from  seeking  the  places  vacated  by 
the  strikers.  It  tends  to  and  is  designed  to 
drive  business  away  from  the  boycotted  place, 
not  by  the  legitimate  means  of  persuasion,  but 
by  the  illegitimate  means  of  physical  intimida- 
tion and  fear." 


The  issue  is,  then,  whether  what  is  per- 
mitted individuals  should  be  permitted  a  com- 
bination. The  minority  say  that,  as  one  per- 
son in  competition  is  permitted  to  refuse  to 
deal  with  those  who  will  not  deal  with  them 
exclusively,  even  though  the  ruin  of  a  rival 
follows,  so  a  union  ought  to  be  allowed  the 


86      THE  CONTROL  OF  THE  MARKET 

same  course  of  action.  But  is  it  fair  to  say 
that  concerted  action  is  of  the  same  nature  as 
separate  action?  Certainly,  it  is  the  usual 
fact  that  individual  competition  may  be  met, 
while  combined  action  is  overwhelming.  The 
truth  is  with  the  majority  of  the  courts,  that 
the  combination  gives  to  concerted  action 
higher  potentiality  than  separate  action  by 
individuals  can  ever  have.  Both  boycotting 
and  unionizing  are  conspicuous  examples  of 
the  resistless  force  of  numbers,  and  this  un- 
derlying basis  of  fact  is  explanation  enough 
of  the  substantial  similarity  of  the  way  in 
which  both  are  treated  by  the  courts.  Until 
individualism  shall  cease  to  be  the  predomi- 
nant theory,  the  courts  will  continue  to  hold 
unionizing  wrong.  Unionizing  will  not  be- 
come legal  unless  the  arguments  for  collec- 
tivism, shall  ever  command  the  adherence 
of  the  great  majority  of  men.  If  that  time 
comes,  the  law,  it  seems,  must  regulate  the 
admission  to  the  unions  to  which  it  would 
thus  concede  the  control  of  the  labor  market. 
For  regulation,  as  we  shall  see  throughout 
this  discussion,  is  the  only  basis  upon  which 
monopoly  can  be  permitted.  If,  finally,  the 
law  should  concede  the  closed  shop,  it  very 
probably  will  require  an  open  union. 


NOTE 

The  position  taken  in  this  chapter  that  the  non-union 
man  is  protected  against  the  union  is  the  law  of  the 
following  jurisdictions  at  least:  Maine — Perkins  v. 
Pendleton,  90  Me.  166  (1897);  Maryland — Lucke  v. 
Clothing  Cutters'  Assembly,  77  Md.  396  (1893)  ;  Massa- 
chusetts— Plant  V.  Woods,  176  Mass.  492  (1900)  ;  Mich- 
igan— Beck  V.  Railway  Teamsters'  Protective  Union,  118 
Mich.  497  (1898)  ;  Minnesota — Gray  v.  Building  Trades' 
Council,  91  Minn.  171  (1903);  Pennsylvania — Erdman 
V.  Mitchell,  207  Pa.  (1903). 

In  the  following  jurisdictions  the  issue  is  in 
doubt:  England— Allen  v.  Flood  (1898),  A.  C.  1  and 
Perrault  v.  Gauthier,  28  Can.  Sup.  241  (1897),  are  for 
the  union,  but  Quinn  v.  Leathem  (1901),  A.  C.  495  and 
Giblan  v.  National  Amalgamated  Union  (1903)  2  K. 
B.  600,  are  distinctly  for  the  non-imion  man;  New  York 
— Curran  v.  Galen,  152  N.  Y.  33  (1897)  and  Davis 
Machine  Company  v.  Robinson,  41  Misc.  329  (1903) 
are  for  the  non-union  man,  but  National  Protective  As- 
sociation V.  Cumming,  170  N.  Y.  315  (1902)  and 
Davis  V.  United  Hoisting  Engineers,  28  App.  Div.  896 
(1898),  hold  for  the  union. 

In  the  following  jurisdictions  at  least  the  law  permits 
the  union  to  force  the  non-union  man  out:  California — 
Pierce  v.  Stablemen's  Union,  156  Cal.  70  (1909);  Indi- 
ana— Clemmit  v.  Watson,  14  Ind.  App.  38  (1895); 
Montana — Lindsay  v.  Montana  Federation,  37  Mont. 
264  (19O8);  New  Jersey — Mayer  v.  Journeymen  Stone- 
cutters' Association,  47  N.  J.  Eq.  519  (I89O). 


87 


CHAPTER  V 

PEESSURE  BY  TRADE  COMBINATIONS 


Even  to  the  most  superficial  observers  of 
current  events,  it  is  clear  that  the  competitive 
system  is  much  threatened  from  many  quar- 
ters. Undoubtedly  the  industrial  order  in 
the  first  half  of  the  twentieth  century  is  going 
to  be  a  different  thing  from  the  business  or- 
ganization of  the  first  half  of  the  nineteenth 
century;  but  whether  this  change  is  to  be 
one  in  kind,  or  one  merely  in  degree,  remains 
to  be  seen.  At  the  present  moment,  despite 
adverse  movements,  the  substance  of  competi- 
tion is  still  to  be  found  in  the  general  course 
of  most  of  industrial  activities  for  the  greater 
part  of  the  time.  This  condition  can  be 
maintained  if  all  the  conservative  forces  of 
society  are  exerted;  and  among  these  one 
of  the  most  potent  is  the  law.  The  courts 
are  manifesting  the  greatest  activity  at  the 
present  time  at  various  points  where  the  dis- 
turbing force  of  the  predatory  combination 

88 


PRESSURE  BY  TRADE  COMBINATIONS     89 

is  making  itself  felt.  The  principal  issue 
is  whether  there  is  a  difference  between  the 
methods  in  competition  which  may  be  em- 
ployed by  an  individual  in  competition,  and 
the  course  of  action  that  may  be  taken  by  a 
combination.  For  example,  may  a  combina- 
tion engaged  in  competition  refuse  to  have 
any  business  dealings  with  those  who  continue 
to  have  commercial  relations  with  its  rivals? 
It  is  obvious  that  if  the  combination  be 
permitted  to  compete  in  this  way  (as  in- 
dividuals may),  the  ruin  of  the  rival,  thus 
cut  off  from  his  sources  of  supply,  will  very 
often  result. 


n 

As  has  been  seen  in  an  earlier  chapter,  the 
general  legal  theory  of  the  most  accurate  ob- 
servers of  these  current  industrial  phenomena 
is  that  every  person  engaged  in  business  has 
a  legal  right  to  his  trade;  consequently  those 
who  interpose  themselves  between  a  trader  and 
the  persons  who  would  deal  with  him  commit 
what  is  prima  facie  a  wrong  by  this  very 
interference.  One  who  intermeddles  with  the 
business  relations  of  another  is  thus  put  to 
his   justification;   and    among   the   initiated, 


90      THE  CONTROL  OF  THE  MARKET 

therefore,  the  problem  of  legality  has  be- 
come a  question  of  justification.  As  to  the 
grounds  upon  which  such  justification  may 
rest,  there  are  many  of  these,  as  has  already 
been  indicated.  For  the  present  purpose  it 
is  enough  that  fair  competition  is  an  accepted 
excuse.  But  if  the  motive  or  the  method 
be  bad,  it  is  not  fair  competition;  and  the 
justification  consequently  fails.  A  striking 
case  of  unfair  action  under  this  rule  is  the 
blacklist.  In  the  case  of  Hundley  v.  Louis- 
ville &  Nashville  Railroad  (45  S.  W.  Ky. 
439),  it  appeared  that  many  railroads  had 
agreed  among  themselves  to  refuse  employ- 
ment to  any  man  who  was  reported  to  their 
blacklist  office  (jointly  maintained)  as  having 
ever  been  party  to  a  strike.  The  court  held 
that  although  any  railroad  might  separately 
have  adopted  this  policy,  their  combination  to 
stand  by  this  blacklist  was  another  matter. 
It  was  thought  to  be  plainly  the  policy  of  the 
law  that  a  man  should  be  free  from  molesta- 
tion in  his  business  relations.  The  only 
thing  lacking  was  a  showing  that  he  had 
actually  been  refused  employment  by  reason 
of  this  combination  against  him.  For,  how- 
ever evil  their  intentions  may  have  been,  this 
complainant  must  show  damage  to  him  of 


PRESSURE  BY  TRADE  COMBINATIONS     91 

some  sort  in  order  to  have   a   standing  in 
court. 

This  law  is  shown  again  in  Doremus  v. 
Hennessy  (176  111.  608).  It  was  set  forth 
in  this  complaint  that  the  members  of  an 
organization  known  as  the  Chicago  Laundry- 
men's  Association  had  fixed  a  scale  of  prices 
for  laundry  work,  and  had  conspired  to  injure 
the  complainant  in  her  good  name  and  credit 
and  to  destroy  her  business  because  she  would 
not  charge  prices  in  accordance  with  such 
scale.  The  court  decided  in  her  favor,  Mr. 
Justice  Phillips  saying:  "  A  combination  by 
them  to  induce  others  not  to  deal  with  ap- 
pellee or  enter  into  contracts  with  her,  or 
to  do  any  further  work  for  her,  was  an  action- 
able wrong.  Every  man  has  a  right,  under 
the  law,  as  between  himself  and  others,  to 
full  and  free  disposition  of  his  own  labor  and 
capital  according  to  his  own  free  will,  and 
anyone  who  invades  that  right  without  lawful 
cause  or  justification  commits  a  legal  wrong, 
and,  if  followed  by  an  injury  caused  in  con- 
sequence thereof,  the  one  whose  right  is  thus 
invaded  has  a  legal  ground  of  action  for  such 
wrong."  Whenever,  therefore,  the  operations 
of  a  combination  in  the  course  of  competition 
are  proved  to  be  detrimental  to  the  best  in- 


92      THE  CONTROL  OF  THE  MARKET 

terest  of  society,  its  members  may  be  held 
to  be  wrongdoers  by  reason  of  what  they 
have  done.  For  what  is  to  be  held  fair  in 
competition,  and  what  is  unfair,  is  by  this 
analysis  all  a  question  of  public  policy,  which 
may  well  be  different  in  the  case  of  concerted 
action  than  in  the  case  of  individual  action. 


in 

It  must  be  remembered  that  we  have 
always  to  reckon  with  the  established  law 
for  freedom  in  competition,  and  the 
undoubted  desire  for  its  maintenance. 
Competition  is  firmly  believed,  by  the  mass 
of  men,  to  be  worth  more  to  society  than  its 
costs;  and,  therefore,  so  long  as  competition 
by  a  combination  has  no  different  effect  upon 
the  course  of  trade  than  competition  by  an 
individual  has,  it  must  be  allowed  to  go  on, 
however  ruinous  it  may  be  to  rivals  in  busi- 
ness. Not  until  we  have  a  plain  case  where 
combined  effort  can  be  shown  to  be  quite 
different  in  its  operation  from  individual 
action,  can  the  competition  of  a  combination 
be  held  unfair,  if  similar  methods  are  held 
fair  enough  for  an  individual.  When  this  is 
so  it  will  usually  be  seen  that,  in  order  to 


PRESSURE  BY  TRADE  COMBINATIONS     93 

preserve  the  freedom  of  the  individual  in 
trade,  the  freedom  of  a  combination  must  be 
curbed. 

Perhaps  the  most  noteworthy  case  in  this 
connection  is  Mogul  Steamship  Company  v. 
McGregor  (L.  R.  23  Q.  B.  D.  598),  because 
of  the  great  opinion  of  Lord  Justice  Bowen. 
The  facts  of  that  case  make  it  a  crucial  one. 
The  defendants  were  a  number  of  ship-own- 
ers who  formed  themselves  into  a  league  or 
"  conference  "  for  the  purpose  of  ultimately 
keeping  in  their  own  hands  the  control  of  the 
tea  carriage  from  certain  Chinese  ports,  and 
for  the  purpose  of  driving  the  plaintiffs  and 
other  competitors  from  the  field.  In  order  to 
succeed  in  this  object,  and  to  discourage  the 
plaintiffs'  vessels  from  resorting  to  those 
ports,  the  defendants,  during  the  "  tea  har- 
vest "  of  1885,  combined  to  offer  to  the  local 
shippers  very  low  freights,  with  a  view  of 
generally  reducing  or  "  smashing  "  rates,  and 
thus  rendering  it  unprofitable  for  the  plain- 
tiffs to  send  their  ships  thither.  Moreover, 
they  offered  a  rebate  of  five  per  cent,  to  all 
local  shippers  and  agents  who  would  deal 
exclusively  with  vessels  belonging  to  the  con- 
ference— a  rebate  which  would  be  forfeited 
if,  at  any  time,  outside  ships  were  used.     It 


94      THE  CONTROL  OF  THE  MARKET 

is  impossible  to  give  a  fair  impression  of  Lord 
Bowen's  opinion  by  extracts  from  it;  but  his 
points  may  be  shown.  Considered  as  mere 
competition  he  found,  as  we  have  seen  al- 
ready, no  cause  of  action.  On  the  point 
of  combination  as  an  element  in  the  case,  he 
could  not  see  that  this  made  any  difference. 
It  was  perfectly  legitimate,  he  thought,  to 
combine  capital  for  all  mere  purposes  of  trade 
for  which  capital  might,  apart  from  com- 
bination, be  legitimately  used  in  trade.  As 
to  his  first  point,  it  would  seem  that  the  same 
policy  which  permits  an  individual  trader  to 
cut  prices  to  any  extent,  although  his  rival 
is  thereby  ruined,  would  allow  a  combination 
to  lower  rates  in  competition  against  its 
rivals.  Indeed,  looked  at  from  one  point  of 
view,  the  public  is  benefited  more  when  many 
lower  prices  than  it  is  when  a  single  man 
does;  and  a  rival  must  meet  the  low  price 
made  by  his  combined  rivals  as  he  must  the 
reduced  rate  of  a  single  opponent,  or  else  go 
out  of  business.  But  as  to  the  second  point 
— query.  Shall  a  combination  be  permitted 
to  take  the  attitude  that  they  will  charge  a 
higher  price  to  those  who  deal  with  a  rival — 
may  a  rival  who  is  thus  driven  out  of  business 
say  that  this  is   unfair  competition?     This 


PRESSURE  BY  TRADE  COMBINATIONS     95 

issue  must  again  be  decided  upon  the  balance 
of  social  advantage,  and  requires,  therefore, 
the  fuller  discussion  which  it  receives  in  this 
and  later  chapters. 

A  rather  similar  case  is  John  D.  Park  & 
Sons  Company  v.  National  Wholesale  Drug- 
gists' Association  et.  all.  (175  N.  Y.  1).  The 
facts  in  that  case  in  brief  were  these:  The 
manufacturers  of  certain  proprietary  medi- 
cines and  an  association  of  wholesale  dealers 
therein  entered  into  an  agreement  to  sell 
the  goods  at  a  uniform  jobbing  price  for  fixed 
quantities  only  to  such  dealers  as  would  con- 
form to  the  manufacturers'  price  list  in  mak- 
ing sales  of  goods.  All  wholesale  dealers  had 
the  right  to  purchase  the  goods  from  the 
manufacturers  upon  the  same  terms  as  mem- 
bers of  the  association,  on  agreeing  to  main- 
tain the  prices  established  by  the  manufac- 
turers. The  complainants  were  unwilling  to 
maintain  the  trade  prices  upon  the  medicines 
they  purchased;  and  they  brought  this  com- 
plaint for  being  charged  the  "  long "  price, 
alleging  that  it  was  by  reason  of  the  conspir- 
acy of  the  defendants  that  they  were  unable 
to  get  the  discount  rate.  The  case  was 
finally  dismissed  in  the  Court  of  Appeals, 
upon  a  course  of  reasoning  which  may  be 


96      THE  CONTROL  OF  THE  MARKET 

seen  in  the  following  extracts  from  the 
opinion  of  Mr.  Justice  Haight:  "  Is 
this  plan  against  public  policy?  An  active 
competition  and  rivalry  in  business  is 
undoubtedly  conducive  to  the  public  wel- 
fare; but  we  must  not  shut  our  eyes  to  the 
fact  that  competition  may  be  carried  to  such 
an  extent  as  to  accomplish  the  financial  ruin 
of  those  engaged  therein,  and  thus  result  in 
a  derangement  of  the  business,  an  incon- 
venience to  consumers,  and  in  public  harm." 
The  argument  for  the  validity  of  special 
favors  by  a  combination  is  stated  most  at- 
tractively when  it  is  said  that  there  is  no  real 
pressure  exerted  by  the  combination  upon 
anyone;  simply  those  outside  the  combination 
get  an  advantage  if  they  accept  the  terms, 
while  they  do  not  get  the  benefit  of  the  con- 
cession  unless    they    conform   to    the    rules. 


IV 

Cases  now  engage  our  attention  where  the 
disturbance  of  the  industrial  peace  by  the 
coercion  exerted  by  a  combination  in  its  com- 
petition is  much  more  serious.  What,  un- 
fortunately, is  a  typical  case  is  seen  in  Jack- 
son V.  Stanfeld  (157  Ind.  592).    Jackson  was 


PRESSURE  BY  TRADE  COMBINATIONS     97 

a  broker  engaged  in  buying  and  selling  lum- 
ber; Stanfeld  was  a  member  of  a  retail  lum- 
ber dealers'  association.  The  rules  of  this 
association  provided  that,  if  a  wholesale 
dealer  should  sell  lumber  direct  instead  of 
through  retailers  who  owned  lumber  yards, 
all  the  members  of  the  association  of  the  re- 
tailers would,  upon  notice,  refuse  to  have 
further  dealings  with  such  a  wholesaler.  In 
holding  this  a  conspiracy,  Mr.  Justice  Dailey 
said:  "The  great  weight  of  authority  sup- 
ports the  doctrine,  that  where  the  policy 
pursued  against  a  trade  or  business  is  cal- 
culated to  destroy  or  injure  the  business  of 
the  person  so  engaged  either  by  threats  or 
by  intimidation,  it  becomes  unlawful,  and  the 
person  inflicting  the  wrong  is  amenable  to 
the  injured  party  in  a  civil  suit  for  damages 
therefor.  It  is  not  a  mere  passive,  let-alone 
pohcy,  a  withdrawal  of  all  business  relations, 
intercourse,  and  fellowship,  that  creates  the 
liability,  but  the  threats  and  intimidation  in- 
volved in  it." 

A  more  recent  phase  of  the  same  problem  is 
seen  in  the  late  case  of  Brown  &  Allen  v. 
Jacobs  Pharmacy  Company  (115  Ga.  429). 
Jacobs,  the  plaintiff,  had  formerly  been  a 
member  of  the  local  branch  of  the  Retailers' 


^ 


98      THE  CONTROL  OF  THE  MARKET 

Association  in  Atlanta ;  but  he  had  withdrawn 
from  it  upon  charges  being  preferred  against 
him  for  violation  of  its  rules.  The  Atlanta 
Retailers'  Association  thereupon  sent  a  letter 
to  the  Wholesalers'  Association,  representing 
that  no  retailer  in  the  local  association  would 
buy  of  any  wholesaler  who  sold  to  the  rate 
cutter.  Mr.  Justice  Fish  promptly  granted 
an  injunction  against  such  concerted  action. 
"  The  individual  right  is  radically  different 
from  the  combined  action.  The  combination 
has  hurtful  powers  and  influences  not  pos- 
sessed by  the  individual.  It  threatens  and 
impairs  rivalry  in  trade,  covets  control  in 
prices,  seeks  and  obtains  its  own  advancement 
at  the  expense  and  in  the  oppression  of  the 
public.  The  difference,  in  legal  contemplation, 
between  individual  right  and  combined  action 
in  trade,  is  seen  in  numerous  cases.  To  pro- 
tect the  individual  against  encroachments 
upon  his  rights  by  a  greater  power  is  one  of 
the  most  sacred  duties  of  the  courts." 

We  have  seen,  then,  that  the  law,  as  de- 
clared by  the  majority  of  courts,  is  to  the 
effect  that  when  a  combination  exerts  its 
force  upon  outside  dealers  to  prevent  them 
from  having  any  relations  with  rivals  of  the 
combination,  the  rivals  have  an  action  for  the 


PRESSURE  BY  TRADE  COMBINATIONS     99 

damages  caused  by  the  interference.  This 
law  is  applied,  by  the  majority  of  courts,  as 
it  seems,  consistently,  when  the  power  of  the 
combination  is  brought  to  bear  upon  its  own 
members  to  prevent  them  from  having  any 
dealings  with  those  outside  the  combination. 
The  same  elements  of  wrong  exist  whether 
the  attack  of  the  conspirators  upon  their  vic- 
tim is  indirect  or  direct.  And  the  key  to  the 
general  problem  under  discussion  seems  to 
be  this,  that  coercion  of  the  sort  discussed 
here  is  wrong  in  itself,  like  fraud,  and  there- 
fore, like  fraud,  an  unfair  method  to  use 
in  competition.  And  conspiracy  will  always 
be  considered  to  be  a  continuing  wrong  of 
which  the  law  will  take  notice  so  long  as  it  is 
true  that  an  organized  force  has  the  power  to 
overwhelm  unorganized  individuals.  This 
principle  of  law  that  we  have  under  discussion 
has  therefore  this  foundation  of  fact,  that  a 
concerted  refusal  to  deal  disturbs  the  indus- 
trial order  in  a  way  which  an  individual 
refusal  never  can. 


To  be  quite  fair,  it  must  be  admitted  that 
there  is  conflict  of  authority  upon  these  mat- 
ters.    There  are  courts  which  hold  that  a 


100  THE  CONTROL  OF  THE  MARKET 

combination  can  use  its  force  to  drive  the 
customers  of  a  rival  away;  and  these  should 
be  given  a  hearing  if  this  investigation  is  to 
be  conducted  impartially.  One  of  the  stron- 
gest of  these  cases  is  MacCauley  Bros.  v. 
Tierney  (19  R.  I.  255).  The  complainants 
were  master  plumbers,  engaged  in  business 
in  Providence;  the  respondents  were  officers 
of  the  Providence  Master  Plumbers'  Asso- 
ciation, a  body  affiliated  with  a  national  asso- 
ciation. This  general  association  had  adopted 
resolutions  that  they  would  withdraw  their 
patronage  from  any  firm  manufacturing  or 
dealing  in  plumbing  material,  which  sold  to 
others  than  members  of  the  affiliated  associa- 
tion. The  enforcement  of  this  resolution  by 
the  officers  was  so  strict  that  complainants 
were  almost  driven  out  of  business  after  they 
had  refused  to  join  the  local  association  and 
be  bound  by  its  rules.  Chief  Justice  Matte- 
son  refused  to  grant  an  injunction.  He  said 
in  part:  "  The  cause  and  excuse  for  the  send- 
ing of  the  notices,  it  is  evident,  was  a  selfish 
desire  on  the  part  of  the  members  of  the 
association  to  rid  themselves  of  the  competi- 
tion of  those  not  members,  with  a  view  to  in- 
creasing the  profits  of  their  own  business. 
The  question,  then,  resolves  itself  into  this: 


PRESSURE  BY  TRADE  COMBINATIONS  101 

Was  the  desire  to  free  themselves  from  com- 
petition a  sufficient  excuse  in  legal  contem- 
plation for  the  sending  of  the  notices?  We 
think  the  question  must  receive  an  affirmative 
answer.  Competition,  it  has  been  said,  is 
the  life  of  trade.  Every  act  done  by  a 
trader  for  the  purpose  of  diverting  trade 
from  a  rival  and  attracting  it  to  himself  is 
an  act  intentionally  done  and,  in  so  far  as  it 
is  successful,  to  the  injury  of  the  rival  in  his 
business,  since  to  that  extent  it  lessens  his 
gains  and  profits.  To  hold  such  an  act 
wrongful  and  illegal  would  be  to  stifle  com- 
petition." 

A  more  recent  case,  with  more  complication 
in  the  facts,  is  Scottish  Cooperative  Whole- 
sale Society  v,  Glasgow  Fleshers'  Trade  De- 
fense Association  (35  Scottish  Law  Reporter, 
645).  Certain  butchers  of  Glasgow  were 
the  members  of  the  defendant  association; 
a  system  of  cooperative  stores  formed  the 
constituency  of  the  plaintiff  association. 
The  fleshers  set  about  it  to  drive  the  stores 
out  of  the  meat  business.  It  appeared  that 
the  imported  meat  market  was  carried  on  at 
only  one  place  in  Scotland,  at  the  Yorkhill 
Wharf  in  Glasgow,  where  the  meats  were 
sold  by  the  importers  at  auction.     The  asso- 


102    THE  CONTROL  OF  THE  MARKET 

ciation  considered  that  they  would  attain  their 
object  if  they  could  induce  the  cattle  sales- 
men who  were  used  to  sell  the  cattle  at 
Yorkhill,  to  refuse  to  sell  to  the  cooperative 
stores.  The  cattle  salesmen  yielded  to  the 
pressure,  and  the  defendants  thereby  forced 
the  plaintiffs  out  of  that  line  of  business. 
Lord  Kincaimey,  who  heard  the  case,  did  not 
see  anything  that  could  be  done  about  it. 
"  After  all,  the  name  does  not  signify.  A 
conspiracy,  combination,  or  association,  is, 
after  all,  nothing  but  a  kind  of  contract. 
But,  assuming  conspiracy,  it  is  not  easy 
to  see  what  the  first  defenders  did  which 
could  subject  them  in  damages.  They  were 
entitled  to  resolve  to  abstain  from  bidding 
at  sales  at  which  cooperative  bids  were  re- 
ceived. It  was  entirely  at  their  option  to 
do  that  or  not.  It  appears  to  me  that  the 
fleshers  acted  within  their  legal  rights.  It 
may  be  regrettable  that  they  happened  to 
have  so  much  in  their  power.  That  is  the 
accident  of  their  position,  and  of  the  peculiar 
character  of  the  foreign  cattle  market." 

The  reasoning  of  these  cases,  and  of  the 
others  that  are  like  them,  is  obvious — ^too 
simple  in  view  of  the  complexity  of  the  prob- 
lem.   It  is  said  that  A  has  a  right  to  refuse 


PRESSURE  BY  TRADE  COMBINATIONS  103 

to  deal  with  B,  unless  he  will  deal  with  him 
exclusively;  therefore  A  and  others  with  him 
have  a  right  to  refuse  to  deal  with  B,  unless 
he  will  deal  with  them  exclusively.  So  it  is 
said,  however  outrageous  the  result,  the  logic 
of  the  law  must  not  be  set  aside.  Under- 
neath affirmation  of  this  sort  lurks  doubt; 
for  if  the  result  is  wrong  the  course  of  reason- 
ing must  be.  There  is  the  intermediate  as- 
sumption that  the  individual  refusal  by  a 
single  man  is  of  the  same  character  as  a 
concerted  refusal  by  many  men.  This  may 
well  be  challenged  as  law,  since  it  is  con- 
trary to  fact.  Even  if  it  were  in  the  face  of 
the  logic  of  the  law,  most  men  would  call 
fthis  competition  unfair.  For  most  men 
firmly  beheve  in  the  perpetuation  of  the  open 
market;  and  they  realize  that  if  a  combina- 
tion may  work  its  will  in  this  way,  the  end  of 
industrial  liberty  is  at  hand. 


VI 

The  true  method  of  approaching  this  prob- 
lem, it  should  be  reiterated,  is  by  way  of 
justification;  we  are  not  examining  absolute 
rights,  but  relative  rights.  This  is  well  put 
in  Delz  v.  Winfree    (80  Tex.   400),  where 


104    THE  CONTROL  OF  THE  MARKET 

the  cause  of  action  stated  in  the  petition  was 
that  several  persons  had  induced  others  not 
to  sell  to  the  petitioner  live  animals  for  cash, 
whereby  he  was  greatly  injured  in  his  busi- 
ness as  butcher.  As  to  the  legality  of  this, 
Associate  Justice  Henry  said,  in  part:  "  The 
appellee  also  asserts  the  following  proposi- 
tion, which  may  be  conceded  to  be  correct: 
*  A  person  has  an  absolute  right  to  refuse  to 
have  business  relations  with  any  person 
whomsoever,  whether  the  refusal  is  based 
upon  reason  or  is  the  result  of  whim,  caprice, 
prejudice,  or  malice,  and  there  is  no  law 
that  forces  a  man  to  part  with  his  title  to  his 
property.'  The  privilege  here  asserted  must 
be  limited,  however,  to  the  individual  action 
of  the  party  who  asserts  the  right.  It  is  not 
equally  true  that  one  person  may,  from  such 
motives,  influence  another  person  to  do  the 
same  thing." 

Granted  that  we  have  under  discussion  a 
case  of  pure  business  motive,  not  of  personal 
spite,  it  becomes  a  question,  therefore,  what 
course  of  action  shall  be  justified,  and  what 
methods  shall  be  held  to  be  opposed  to  public 
policy.  An  excellent  recent  case  attacks  the 
problem  upon  that  basis — Bailey  v.  Master 
Plumbers'  Association  (103  Tenn.  99).    This 


PRESSURE  BY  TRADE  COMBINATIONS  105 

was  one  of  the  typical  cases — the  defendants, 
members  of  an  association  with  by-laws  for- 
bidding its  members  to  purchase  from  deal- 
ers who  sold  to  outsiders,  the  plaintiff,  one 
forced  out  of  business  by  this  sort  of  com- 
petition. And  whether  this  is  fair  or  unfair 
competition  was  again  the  question.  The 
court — Mr.  Justice  Caldwell  writing  the 
opinion — says  in  one  place:  "  In  our  opinion, 
it  does  not  follow  from  this  undoubted  free- 
dom of  the  individual  member  and  individual 
dealer  that  all  of  the  members  may,  as  ruled 
in  those  cases,  lawfully  enter  into  a  general 
and  unlimited  agreement,  in  the  form  of  by- 
laws, that  they,  and  all  of  them,  will  make 
their  purchases  from  only  such  dealers  as 
will  sell  to  members  exclusively.  The  premise 
does  not  justify  the  conclusion." 

If,  then,  this  is  all  a  matter  of  justifica- 
tion, the  existing  law  may  be  explained  by 
saying  that  perhaps  an  individual  in  com- 
petition may  be  allowed  to  refuse  to  deal  with 
those  who  deal  with  his  rival  without  danger 
to  the  industrial  order,  while  certainly  a  great 
combination  may  not  be  allowed  to  use  the 
same  method  without  disturbance  of  the 
industrial  peace.  But  is  the  method  really 
the  same  when  there  is  refusal  by  an  in- 


106    THE  CONTROL  OF  THE  MARKET 

dividual?  It  seems  the  real  truth  that  the 
very  concert  gives  combined  action  a  higher 
potentiality  for  harm  than  individual  action 
ever  can  have.  Formal  logic  does  not  now 
support  the  minority  view  that  the  combina- 
tion is  as  free  to  act  in  this  way  as  an  in- 
dividual is.  And  public  policy  certainly 
seems  to  be  with  the  majority  view  that  the 
individual  trader  should  be  protected  against 
the  pressure  of  the  combination  which  is 
breaking  up  his  business  relations  with  those 
who  might  otherwise  deal  with  him.  The 
reality  of  such  oppression  carries  with  it,  in 
most  minds,  the  conviction  of  the  essential 
wrongfulness  of  such  dictation  by  the  com- 
bination. 

vn 

By  some  observers  of  these  cases  a  differ- 
ence is  suggested  between  the  situation  just 
under  examination,  where  the  coercion  of  the 
combination  is  exercised  upon  third  parties 
outside  of  the  combination,  and  what  seems 
to  them  another  state  of  affairs  where  an  out- 
side party  is  injured  solely  by  the  pressure  of 
the  members  of  an  association  upon  each 
other.  It  is  urged  here  for  the  last  time  that 
what  one  may  do  alone,  he  may  join  with 


PRESSURE  BY  TRADE  COMBINATIONS  107 

others  to  do.  But  this  is  not  a  safe  course 
of  reasoning,  as  has  already  been  seen. 
Therefore  the  cases  that  present  this  differ- 
ence should  be  scrutinized  to  see  if  there 
really  is  any  such  distinction  as  that  which 
is  attempted. 

One  of  the  leading  cases  of  those,  which  was 
decided  for  the  combination,  is  Bohn  Manu- 
facturing Company  v.  HoUis  (54  Minn.  223). 
It  appeared  in  this  case  that  a  large  number 
of  retail  lumber  dealers  had  formed  a  volun- 
tary association,  by  which  they  mutually 
agreed  that  they  would  not  deal  with  any 
manufacturer  or  wholesale  dealer  who  should 
sell  lumber  directly  to  consumers,  not  dealers, 
at  any  point  where  a  member  of  the  associa- 
tion had  a  retail  yard;  and  they  provided 
in  their  by-laws  that,  whenever  any  whole- 
saler, dealer,  or  manufacturer  made  any  such 
sale,  the  secretary  should  notify  all  the  mem- 
bers of  the  fact.  The  plaintiff,  a  wholesaler, 
having  made  such  a  sale  directly  to  a  cus- 
tomer, the  secretary  threatened  to  send  notice 
of  the  fact,  as  provided  in  the  by-laws,  to 
all  the  members  of  the  association.  The 
opinion  of  Mr.  Justice  Mitchell  is  such  in- 
teresting reading  that  another  extract  may 
be  pardoned:     "  There  is,   perhaps,   danger 


108    THE  CONTROL  OF  THE  MARKET 

that,  influenced  by  such  terms  of  illusive 
meaning  as  '  monopolies,'  *  trusts,'  '  boy- 
cotts,' '  strikes,'  and  the  like,  the  courts 
may  be  led  to  transcend  the  limits  of  their 
jurisdiction,  assume  that,  on  general  prin- 
ciples, they  have  authority  to  correct  or  re- 
form everything  which  they  may  deem  wrong, 
or,  to  manage  the  State.  Now,  when  reduced 
to  its  ultimate  analysis,  all  that  the  retail 
dealers,  in  this  case,  have  done,  is  to  form 
an  association  to  protect  themselves  from 
sales  by  wholesale  dealers  or  manufacturers, 
directly  to  consumers  or  other  non-dealers,  at 
points  where  a  member  of  the  association  is 
engaged  in  the  retail  business." 

Another  rather  extraordinary  case  to  the 
same  effect  is  Brewster  v.  Miller's  Sons  Com- 
pany (101  Ky.  368).  This  was  a  suit  against 
the  members  of  the  Funeral  Directors'  Asso- 
ciation of  Louisville.  The  wife  of  the  plain- 
tiff Brewster  died;  he  went  to  the  defendants, 
C.  Miller's  Sons,  to  engage  their  services  for 
her  burial.  They  refused  to  act,  because,  as 
they  claimed,  the  plaintiff  was  already  in- 
debted to  them.  The  other  defendants  re- 
fused to  perform  the  necessary  services  be- 
cause of  this  claim  of  C.  Miller's  Sons  that 
Brewster  was  indebted  to  them  for  previous 


PRESSURE  BY  TRADE  COMBINATIONS  109 

services,  according  to  the  rules  of  the  Funeral 
Directors'  Association.  The  court — ^Mr. 
Justice  Paynter  wrote  the  opinion — could 
find  nothing  wrong  in  this;  it  said:  "If 
one  has,  on  a  previous  occasion,  received 
the  services  of  the  undertaker,  and  his  ma- 
terial, and  has  refused  or  failed  to  pay  the 
bill,  it  is  certainly  not  unreasonable  to  re- 
fuse to  permit  him  services.  To  afford 
mutual  protection  against  such  persons  it 
is  not  unlawful  for  the  undertakers  of  the 
conununity  to  associate  themselves  together 
and  agree  to  refuse  to  render  a  like  service 
to  one  who  has  refused  or  failed  to  pay 
such  expenses  in  the  past  to  some  member 
of  the  association." 

VIII 

One  of  the  best  reasoned  cases  upon  this 
whole  general  problem  remains  to  be  stated, 
Martell  v.  White  (185  Mass.  255).  It 
plainly  appeared  in  this  case  that  the  Granite 
Manufacturers'  Association,  of  which  de- 
fendants were  members,  had  a  by-law  that 
prohibited  under  penalty  any  member  from 
having  business  transactions  with  non-mem- 
bers. Most  of  the  customers  of  the  plain: 
tiff   were  members   of   the   association,   and 


110    THE  CONTROL  OF  THE  MARKET 

after  some  of  them  had  been  fined  by  the 
association  for  dealing  with  him,  the  rest 
declined  to  deal  with  him  further.  The  opin- 
ion of  Mr.  Justice  Hammond  in  this  case  is 
so  excellent  in  its  grasp  of  the  general  sit- 
uation, as  it  stands  at  the  present  moment, 
that  it  would  be  well  if  all  of  it  could  be 
printed  here :  "  Nothing  need  be  said  in  sup- 
port of  the  general  right  to  compete.  To 
what  extent  combination  may  be  allowed  in 
competition  is  a  matter  about  which  there  is 
as  yet  much  conflict,  but  it  is  possible  that  in 
a  more  advanced  stage  of  the  discussion,  the 
day  may  come  when  it  will  be  more  clearly 
seen  and  will  more  distinctly  appear  in  the 
adjudication  of  the  courts  than  as  yet  has 
been  the  case,  that  the  proposition  that  what 
one  man  lawfully  can  do,  any  number  of 
men,  acting  together  by  combined  agreement, 
lawfully  may  do,  is  to  be  received  with  newly 
disclosed  qualifications  arising  out  of  the 
changed  conditions  of  civilized  life  and  of  the 
increased  facility  and  power  of  organized 
combination,  and  that  the  difference  between 
the  power  of  individuals  acting  each  accord- 
ing to  his  preference,  and  that  of  an  or- 
ganized and  extensive  combination,  may  be 
so  great  in  its  effect  upon  public  and  private 


PRESSURE  BY  TRADE  COMBINATIONS  111 

interests  as  to  cease  to  be  simply  one  of  de- 
gree and  to  reach  the  dignity  of  a  difference 
in  kind." 

In  the  latest  case  in  Massachusetts,  Davis 
V.  The  Publishing  Company  (203  Mass. 
470),  the  matter  of  combination  was  reduced 
to  its  simplest  terms,  there  being  but  two  in 
the  combination  complained  of.  It  appeared 
from  the  complaint  that  the  plaintiff  express- 
man had  been  excluded  from  the  list  in  the 
publication  of  one  of  the  defendants,  by  the 
machinations  of  two  of  his  competitors,  the 
remaining  defendants,  but  Mr.  Justice 
Knowlton  said  as  to  the  plaintiff — "  the  gist 
of  the  plaintiff's  action  is  the  wrong  done 
him  by  intentionally  turning  away  from  him 
those  who  otherwise  would  do  business  with 
him."  And  as  to  the  defendants  he  said — 
"  their  desire  to  advance  their  own  interests  in 
competition  is  not  a  justification  for  attempt- 
ing to  interfere  with  the  plaintiff's  business 
by  misstatements,  and  the  making  of  a  false 
and  misleading  publication."  The  law  will, 
therefore,  move  against  any  combination, 
large  or  small,  which  is  in  any  way,  directly 
or  indirectly,  seeking  to  destroy  the  business 
of  a  rival  by  using  the  force  of  its  organiza- 
tion to  drive  his  customers  from  him. 


112    THE  CONTROL  OF  THE  MARKET 

IX 

Underlying  this  refusal  to  justify  the  sort 
of  competition  which  is  now  under  discussion 
is  the  general  public  policy  against  monopo- 
lization. It  is  opposed  to  present  ideals  that 
a  combination  should  be  allowed  to  employ 
methods  which  will  enable  it  to  gain  control 
of  its  market.  This  is  the  real  explanation 
why  the  courts,  by  a  considerable  majority, 
have  declared  that  a  combination  cannot  bring 
its  organized  force  to  bear  upon  an  individual 
rival  so  as  to  cut  him  off  from  his  source 
of  supplies.  When  it  is  more  or  less  true 
that  any  man  may  enter  any  business  upon 
his  merits,  the  perpetuation  of  the  open  mar- 
ket is  assured.  But  if  men  in  business  are 
left  at  the  mercy  of  the  predatory  trusts,  the 
combinations  would  practically  have  a  perma- 
nent hold  upon  the  industries.  And  to  the 
majority  of  men  an  end  of  competitive  con- 
ditions in  the  ordinary  businesses  would  seem 
the  final  catastrophe,  beyond  which  there 
could  be  nothing  but  the  horror  of  anarchy 
or  the  hopelessness  of  socialism.  It  is  be- 
cause of  these  perils  to  society  that  we  are 
finding  to-day  such  agreement  as  to  the  pro- 
priety of  regulation  of  the  industrial  situa- 


PRESSURE  BY  TRADE  COMBINATIONS  113 

tion  by  law.  A  very  great  change  this  is, 
from  the  doctrines  of  laissez  faire  of  the  early 
nineteenth  century  to  the  principles  of  state 
control  in  this  early  twentieth  century. 


NOTE 

The  plaintiff  thus  injured  in  his  business  was  given 
a  remedy  in:  Georgia — Brown  v.  Jacobs  Pharmacy  Co., 
115  Ga.  429  (1902);  Illinois — Doremus  v.  Hennessy, 
176  111.  608;  Indiana — Jackson  v.  Stanfeld,  137  Ind. 
592  (1893);  Maryland— Klingel  v.  Sharp,  104i  Md. 
218;  Massachusetts — Martell  v.  White,  185  Mass.  255 
(1906);  Minnesota — Ertz  v.  Produce  Exchange,  79 
Minn.  140  (1900);  Missouri — ^Walsh  v.  Assn.  of  Master 
Plumbers,  97  Mo.  App.  280  (1902);  New  Jersey — Barr 
V.  Essex  Trades  Council,  53  N.  J.  Eq.  101  (1894); 
Ohio — Mattison  v.  L.  S.  &  M.  S.  Ry.  Co.,  3  Ohio  Dec. 
526  (1895);  Tennessee — Bailey  v.  Master  Plumbers* 
Assn.,  103  Tenn.  99  (1899);  Texas— Olive  v.  Van 
Patten,  7  Tex.  Civ.  App.  630  (1894);  Vermont— Bout- 
well  V.  Marr,  71  Vt.  1  (1896);  Wisconsin — Hawarden 
V.  Youghiogheny  Coal  Co.,  Ill  Wis.  545  (1901). 

The  defendants  were  not  held  liable  in:  Colorado — 
Master  Builders'  Ass'n  v.  Domascio,  16  Col.  App.  25 
(1901);  Kentucky — Brewster  v.  Miller's  Sons  Co.,  101 
Ky.  368  (1897);  Minnesota— Bohn  Mfg.  Co.  v.  HoUis, 
54  Minn.  223  (1893);  Rhode  Island— MacCauley  Bros. 
V.  Tierney,  19  R.  I.  255  (1898);  West  Virginia  Trans- 
portation Co.  V.  Standard  Oil  Co.,  50  W.  Va.  6II 
(1902). 

In  certain  jurisdictions  the  decisions  are  hard  to 
reconcile:  England,  up  to  the  time  of  Quinn  v.  Leathem 
(1901),  A.  C.  495,  was  not  opposed  to  such  action  by  a 
combination  (of.  Boots  Co.  v.  Grundy,  82  L.  T.  769); 

116 


116  NOTE 

but  it  now  seems  that  the  particular  issue  here  involved 
would  fall  under  the  rule  of  this  latest  case  and  be 
decided  against  the  combination.  The  same  observations 
apply  to  Scottish  Cooperative  Soc.  v.  Glasgow  Fleshers' 
Ass'n,  35  Sc.  Law  Reporter  645,  which  was  decided  for 
the  defendants,  while  Allen  v.  Flood  (1898),  A.  C.  1, 
was  still  good  law.  New  York — The  courts,  upon  the 
whole,  have  favored  the  combination  in  late  years  (see 
Park  V.  Wholesale  Druggists'  Ass'n,  175  N.  Y.  I., 
1903) ;  but  the  latest  decision  is  for  the  individual  thus 
injured,  Straus  v.  American  Publishers'  Ass'n,  177  N.  Y. 
478  (1903). 


CHAPTER  VI 

CONTRACTS  IN  RESTRAINT  OF  TRADE 


It  has  been  remarked  that  whenever 
there  is  an  accepted  belief  among  men  that 
strict  adherence  to  certain  policies  is  necessary 
for  their  industrial  salvation,  that  belief  has 
already  become  a  principle  of  the  law.  In 
dealing  with  the  eternal  problem  of  com- 
petition and  combination,  the  judges  have  the 
same  social  imagination  as  other  men.  And 
as  the  most  of  men  still  think  that  competi- 
tion in  general  is  a  good,  the  most  of  courts 
yet  consider  combination  an  evil.  Whether 
or  not  it  is  true  that  a  contract  in  restraint 
of  trade  is  against  the  better  interests  of  the 
community,  as  the  law  has  always  held,  may 
be  judged  from  the  many  and  various  in- 
stances of  schemes  to  control  the  market  re- 
lated in  this  chapter. 

II 

From  the  Common  Pleas  in  the  year  1415 
this   case  is   reported :   "  Writ   of   debt   was 

117 


118    THE  CONTROL  OF  THE  MARKET 

brought  on  an  obligation  of  one  John  Dier, 
in  which  the  defendant  declared  upon  a  cer- 
tain indenture  which  he  set  forth,  on  con- 
dition that  if  the  defendant  did  not  use  his 
art  of  dier's  craft  within  the  town  where  the 
plaintiff,  etc.,  for  a  certain  time,  to  wit,  half 
a  year,  the  obligation  should  lose  all  force, 
etc.,  and  said  that  he  did  not  use  his  art  of 
dier's  craft  in  the  time  limited,  which  he 
averred  and  prayed  judgment,  etc.  Hull. — 
In  my  opinion  you  might  have  demurred 
upon  him,  that  the  obligation  is  void,  for  that 
the  obligation  is  against  the  common  law, 
and  by  God,  if  the  plaintiff  were  here,  he 
should  go  to  prisoft  until  he  paid  a  fine  to  the 
king."  From  that  day  to  this  every  contract 
in  total  restraint  of  trade  has  been  held 
invalid. 

Our  law  has  never  been  free  from  the  fear 
that  such  agreements  might  result  in  serious 
disturbance  of  the  ordinary  processes  of  com- 
petition. This  fear  was  well  founded  in 
ancient  times,  when  the  market  was  small; 
for  England  had  not  yet  changed  from  a 
local  economy,  where  each  community  was 
sufficient  to  itself,  into  a  national  economy 
which  implied  interchange  of  goods  between 
distant  communities.    It  was  nearly  two  cen- 


CONTRACTS  IN  RESTRAINT  OF  TRADE     119 

turies  before  the  concession  was  made  that 
any  contracts  restraining  competition  could 
be  legal;  but  with  expanding  trade,  commer- 
cial conditions  arose  which  made  it  necessary 
that  some  distinctions  should  be  made.  In 
Jelliet  V,  Broade,  for  example  ( as  reported  by 
Noy,  page  98),  "J  sells  goods  to  B  for 
$200,  and,  in  consideration  of  that  bargain, 
B  promises  that  he  will  not  exercise  the  trade 
of  a  mercer  in  such  a  village.  But  after  B 
uses  it  there,  and  J  brought  an  action  on  the 
case,  and  resolved  by  the  court  that  it  well 
lies,  for  it  was  a  voluntary  promise  for  a 
good  consideration,  and  it  is  restraint  as  to 
a  place.  Otherwise  if  it  had  been  a  general 
restraint  or  upon  a  co-action  or  without  con- 
sideration." Partial  restraint  was  thus  dis- 
tinguished from  total  restraint,  and  this  dis- 
tinction served  for  centuries  to. mark  the  line 
dividing  what  was  permissible  from  what  was 
forbidden. 

In  the  early  days  in  many  a  small  town 
it  was  quite  possible  for  one  man  to  con- 
trol all  of  a  given  commodity  in  his  mar- 
ket, which  he  could  then  sell  again  at  his 
own  price.  So  restricted  were  the  sources 
of  supply  to  a  given  market  in  those  early 
times  that  these  offenses  constituted  real  dan- 


120    THE  CONTROL  OF  THE  MARKET 

gers  to  the  local  consumers.  But  with  a 
widening  economy  these  dangers  ceased  and 
this  law  became  obsolete  as  time  went  on. 
Practices  such  as  these  were  indictable  of- 
fenses in  these  early  times.  It  was  against 
the  public  peace  that  the  market  should  be 
thus  disrupted.  Hence,  in  most  of  the 
assizes,  inquiry  was  made  if  such  schemes  to 
control  the  market  were  on  foot  in  the  com- 
munity. What  was  feared  at  the  outset  was 
any  reversion  to  monopolistic  conditions  by 
artificial  restraints  upon  what  would  other- 
wise be  the  regular  course  of  the  competitive 
market.  To  keep  that  market  open  the  law 
now  exercised  every  diligence,  as  the  rapid 
development  of  special  law  against  certain 
practices  abundantly  showed. 

It  was  then  that  forestalling  and  regrating 
became  recognized  offenses.  Forestalling  was 
interference  with  the  course  of  trade  at 
the  earlier  stage,  where  designing  persons 
went  out  on  the  roads  leading  to  market  and 
bought  whole  wagon  loads  of  wheat  from  a 
farmer  who  was  bringing  it  to  market,  their 
intention  being  to  resell  the  wheat  in  that 
market  at  a  profit.  Similarly  regrating  was 
the  work  of  undesirable  citizens  who 
went  boldly  into  the  market  and  bought  more 


CONTRACTS  IN  RESTRAINT  OF  TRADE     121 

provisions  than  they  needed  for  their  own 
consumption,  with  intent  to  sell  again  in  the 
same  market.  There  were  two  other  offenses 
of  this  sort  against  trade,  engrossing  and 
monopolizing,  which  deserve  perhaps  more 
attention,  as  these  engaged  the  business  sa- 
gacity and  larger  capital  of  the  bigger  men. 
Usually,  such  only  could  buy  up  great  quan- 
tities of  a  staple  to  hold  until  the  price  should 
be  enhanced  or  make  many  forward  contracts 
for  the  delivery  of  growing  crops.  It  will 
be  seen  presently  that  this  old  law  against 
monopolization  in  all  its  forms  has  had  re- 
newed significance  in  recent  times. 


m 

In  the  earlier  cases  the  policy  against  any 
real  restraint  of  trade,  and  against  monopo- 
lization in  any  form  whatsoever,  was  main- 
tained on  every  occasion,  whatever  the  cir- 
cumstances. The  judges  still  spoke  in  un- 
compromising terms;  the  time  for  making 
distinctions  had  not  come  yet.  For  example, 
in  Claygate  v.  Batchelor  (Owen,  148),  in  re- 
fusing to  enforce  an  agreement  that  one 
tradesman  should  not  do  business  in  a  certain 
town,   Anderson,   J.,   reached  the   height  of 


122    THE  CONTROL  OF  THE  MARKET 

his  fulmination  by  saying  that  "  he  might  as 
well  bind  himself  that  he  would  not  go  to 
Church!" 

In  the  great  Case  of  Monopolies  (11  Rep. 
84) ,  Popham  and  all  his  court  resolved  against 
the  Queen's  grant:  "That  it  is  a  monopoly, 
and  against  the  common  law.  All  trades  as 
well  mechanical  as  others  which  prevent  idle- 
ness (the  bane  of  the  Commonwealth)  and 
exercise  men  and  youth  in  labor  for  the 
maintenance  of  themselves  and  their  families, 
and  for  the  increase  of  their  substance,  to 
serve  the  Queen  when  occasion  shall  require, 
are  profitable  to  the  Commonwealth,  and 
therefore  a  monopoly  of  them  is  against 
the  common  law  and  the  benefit  and  liberty 
of  the  subject." 

Until  well  toward  the  end  of  the  eight- 
eenth century  our  law  dealt  with  restraint 
of  trade  in  an  uncompromising  manner. 
But  before  the  middle  of  the  nineteenth 
century  it  had  been  discovered  that  the  law 
could  not  be  too  arbitrary  without  hamper- 
ing business  too  much;  and  it  was  found 
necessary  to  moderate  it  by  making  certain 
distinctions.  There  thus  was  brought  about 
in  various  ways  enough  modification  of  the 
primary  rule  against  contracts  affecting  com- 


CONTRACTS  IN  RESTRAINT  OF  TRADE     123 

petition,  so  that  toward  the  end  of  the  cen- 
tury the  generalization  might  fairly  be  made 
that  it  was  only  unreasonable  contracts  which 
directly  suppressed  competition  which  should 
be  held  void,  while  reasonable  arrangements 
which  still  left  the  contracting  parties  a  cer- 
tain independence  might  be  valid.  It  was 
by  this  modern  method  of  making  distinc- 
tions that  it  was  held  in  an  early  Florida 
case  that  pilots  might  make  an  agreement 
among  themselves  that  the  courts  would  en- 
force as  to  the  order  in  which  they  should 
take  the  station,  Judge  Baltzell  taking  occa- 
sion to  extol  modem  cooperation  as  that 
which  "  distinguished  civilized  from  savage 
life." 

In  the  same  wise  spirit  of  compromise, 
Chief  Justice  Shaw  in  Massachusetts  de- 
cided that  laborers  "  could  not  be  prosecuted 
for  merely  going  upon  a  strike  for  higher 
wages,  although  the  preconcert  was  ad- 
mitted." Many  other  illustrations  might 
be  cited,  if  space  permitted,  of  the  reasonable 
modification  of  the  common  law  during  the 
nineteenth  century  until  it  finally  presented 
a  working  compromise  between  the  two  de- 
sirable policies  of  safeguarding  competition 
and    utilizing    combination.      And   this    had 


lU    THE  CONTROL  OF  THE  MARKET 

come  from  a  general  recognition,  after  ma- 
ture reflection  upon  the  known  course  of 
economic  history,  that  in  competition  and 
combination  we  have  two  eternal  forces,  and 
it  should  be  the  object  of  the  law  to  accom- 
modate them,  with  due  regard  to  the  vital 
needs  of  the  business  community. 


IV 

An  interesting  plot  in  modern  times  to 
hold  up  the  market  is  seen  in  Pacific  Factor 
Company  v.  Adler  {90  Cal.  110).  In  that 
case  the  plaintiff  had  got  an  option  from  the 
defendant  for  the  delivery  of  some  200,000 
grain  bags  and  was  attempting  to  enforce  it. 
The  defense  was  that  the  plaintiff  entered 
into  contracts  with  other  holders  of  grain 
bags  in  all  respects  similar  to  the  contract 
made  with  the  defendant  to  the  amount  of 
30,000,000  bags,  with  intent  to  monopolize 
the  market.  Mr.  Justice  Garoutte  affirmed 
the  non-suit,  making  this  general  argument 
against  the  monopolizing  company:  "  It 
held  the  bag  market  in  its  hands,  for  com- 
petition was  gone,  and  the  price  demanded 
must  be  paid.  These  agreements  were  not 
entered  into  for  the  purpose  of  aggregating 


CONTRACTS  IN  RESTRAINT  OF  TRADE     125 

capital,  nor  for  greater  facilities  in  the  con- 
ducting of  their  business,  nor  for  the  pro- 
tection of  themselves  by  a  reasonable  re- 
straint upon  active  competitors,  but  for  the 
purpose  of  regulating,  controlling  and  with- 
holding the  supply  of  bags,  and  thereby  to 
take  an  unjust  advantage  of  the  farmers' 
necessities,  by  disposing  of  the  fruits  of  its 
unlawful  labors  at  an  unreasonable  advance 
in  price." 

Even  a  modern  market  may  be  tempo- 
rarily disturbed  by  such  accumulation,  and 
the  normal  price  may  be  decidedly  enhanced 
by  such  monopolization.  Occasionally  a 
case  like  Wright  v.  Cudahy  (168  111.  86) 
appears  in  our  law  reports  to  remind  us  of 
the  persistence  of  the  policy  against  monopo- 
lization. In  that  case  a  pork  "  corner  "  was 
engineered  with  some  success,  but  the  court 
refused  to  force  one  of  the  parties  to  divide 
the  ill-gotten  gains.  Upon  the  whole  those 
who  attempt  to  corner  the  modem  market 
usually  fail  at  the  very  moment  of  their 
apparent  success.  That  fate  generally  over- 
takes them  which  almost  invariably  befalls 
any  one  man,  however  powerful,  who  at- 
tempts to  injure  all.  This  law  has  all  but 
disappeared,    as    the   market   has   expanded 


126    THE  CONTROL  OF  THE  MARKET 

until  it  has  gotten  almost  beyond  the  power 
of  any  one  man  to  corner  it.  But  this  law 
remains  against  aggregations  of  capital  which 
often  are  large  enough  to  take  control  even 
of  the  modern  market  for  a  time. 


Upon  this  vexed  question  of  combination 
in  restraint  of  trade,  one  of  the  leading  cases 
in  America ,  is  India  Bagging  Association  v. 
Kock  (14  La.  Ann.  168).  The  facts,  as 
they  appear  from  the  finding  of  the  court, 
are  as  extreme  as  can  be  imagined.  An  asso- 
ciation was  formed  of  eight  firms  in  New 
Orleans,  holders  of  large  stocks  of  India 
bagging,  and  by  agreement  the  subscribers 
bound  themselves  not  to  sell  any  bagging 
whatever  for  three  months,  except  by  vote 
of  the  majority.  Mr.  Justice  Buchanan  dis- 
missed a  suit  by  the  association  against  a 
member  who  sold  in  violation  of  the  agree- 
ment in  a  peremptory  manner :  "  This  is  a 
case  which  ought  never  to  have  come  be- 
fore us.  The  agreement  between  the  parties 
was  palpably  and  unequivocally  a  combina- 
tion in  restraint  of  trade,  and  to  enhance 
the  price  in  the  market  of  an  article  of  pri- 


CONTRACTS  IN  RESTRAINT  OF  TRADE     127 

mary  necessity  to  cotton  planters.  Such  com- 
binations are  contrary  to  public  order,  and 
cannot  be  enforced  in  a  court  of  justice." 

This  is  a  case  of  total  suppression  of  trade 
for  the  time  being;  nothing,  therefore,  can 
save  it  from  the  condemnation  of  the  law. 
And  it  is  obvious  in  a  case  like  this  how 
necessary  it  is  to  have  unequivocal  law  to 
deal  with  such  a  situation.  It  is  hardly  too 
harsh  to  brand  men,  who  confederate  in  this 
way  to  withhold  all  supplies  from  the  market, 
as  enemies  to  society.  The  courts  properly 
treat  such  parties  when  they  come  before 
them  as  outlaws.  Upon  the  whole,  few  rules 
in  our  public  policy  have  been  so  thorough- 
going as  this  against  restraint  of  trade.  And 
it  does  not  change  the  law  if  the  effects  of 
that  agreement  may  be  limited  to  a  certain 
extent  by  the  competition  of  parties  out- 
side the  agreement.  It  is  enough  to  con- 
demn the  agreement,  if,  as  between  the  par- 
ties, the  restraint  is  total.  The  law  con- 
siders all  contracts  between  competitors  to 
limit  their  competition  as  bad  in  principle. 

The  restraint  of  trade  thus  is  as  obnoxious 
to  a  modern  court  as  ever,  as  Tuscaloosa  Ice 
Company  v.  Williams  (127  Ala.  110),  one 
of  the  latest  cases,  shows.     The  complaint 


128    THE  CONTROL  OF  THE  MARKET 

recited  that  by  the  terms  of  an  agreement 
between  the  plaintiff  and  defendant,  the  first 
party  was  to  pay  $875  a  year  and  the  second 
party  was  to  shut  down  his  ice  machine  for 
five  years.  The  court  held  the  whole  con- 
tract so  clearly  bad  as  to  be  altogether  un- 
enforceable, Mr.  Justice  McClellan  saying: 
"  It  tends  to  injure  the  public  by  stifling 
competition  and  creating  a  monopoly.  It 
operated  not  only  to  put  in  the  power  of 
the  covenantee  to  arbitrarily  fix  prices,  but 
directly  and  necessarily  to  create  a  partial 
ice  famine,  upon  which  the  defendant  com- 
pany could  batten  and  fatten  at  its  own  sweet 
will.  That  a  monopoly  was  created  is  clear 
beyond  all  dispute.  That  ends  the  case 
against  the  validity  of  the  covenant." 


VI 

Against  all  real  restraint  of  trade  the  law 
is  still  set;  and  often  it  frustrates  the  plans 
of  the  conspirators  when  it  is  least  expected. 
Take  for  an  example  the  lowly  case  of 
Chapin  v.  Brown  Bros.  (83  Iowa,  156).  The 
facts  are  petty,  yet  the  issue  is  involved.  All 
that  appears  is  that  by  an  arrangement  be- 
tween the  storekeepers  in  a  country  town  it 


CONTRACTS  IN  RESTRAINT  OF  TRADE     129 

was  agreed  that  all  of  them  should  stop  buy- 
ing butter  of  the  farmers,  except  one  of 
them,  who  should  share  his  profits  with  them. 
This  deprived  the  farmers  of  the  benefit  of 
the  competition  of  the  buyers,  as  one  sees.- 
Justice  Rothrock  refused  to  enforce  this  con- 
tract; he  said:  "  It  plainly  tends  to  monopo- 
lize the  butter  trade  at  Storm  Lake,  and 
destroy  competition  in  that  business.  It  is 
not  necessary  that  the  enforcement  of  the 
agreement  would  actually  create  a  monopoly 
in  order  to  render  it  invalid,  and  surely  where 
all  the  dealers  in  a  commodity  in  a  certain 
locality  agree  to  quit  the  business,  and  the 
plaintiffs  are  installed  as  the  only  dealers 
in  that  line,  the  tendency  is,  for  a  time  at 
least,  to  destroy  competition,  and  leave  the 
plaintiffs  as  the  only  dealers  in  that  species 

of  property  in  that  locality."  \ 

A  precious  scheme  is  that  disclosed  in  Mil- 
waukee Masons  and  Builders'  Association  v. 
Niezerowski  (95  Wis.  129).  This  was  an 
action  on  a  note  to  which  it  was  pleaded  as 
making  out  a  defense  upon  grounds  of  pub- 
lic policy.  Tliat  the  note  was  given  by  the 
defendant,  a  builder,  to  the  plaintiff,  the 
association,  in  pursuance  of  its  requirements 
that    every    successful    bidder    for    contracts 


130    THE  CONTROL  OF  THE  MARKET 

in  Milwaukee  should  pay  over  to  the  asso- 
ciation six  per  cent,  of  the  contract  price. 
The  showing  of  such  a  scheme  was  enough 
for  Mr.  Justice  Pinney:  "  The  combination 
in  question  is  contrary  to  public  policy,  and 
strikes  at  the  interests  of  those  of  the  public 
desiring  to  build,  and  between  whom  and 
the  association  or  the  members  thereof  there 
exist  no  contract  relations.  While  all  reason- 
able stipulations  and  means  to  protect  labor 
or  trade  are  laudable,  we  must  hold  that  the 
means  here  sought  to  be  employed  are  such 
as  the  law  will  not  sanction.  We  must 
consider  what  may  be  done  under  such  an 
agreement,  and  the  result  which  it  will  neces- 
sarily produce.  As  already  pointed  out, 
the  operation  of  this  combination,  under  its 
private  by-laws,  is  to  suppress  free  and  fair 
competition  in  bidding  for  contracts,  and  by 
delusive  and  deceptive  means  members  of 
the  association  are  enabled  to  exact  from 
owners  a  higher  price  for  buildings  than 
they  would  otherwise  have  to  pay." 


vn 

It  will  have  been  noted  that  in  the  mod- 
ern cases  the  attempt  has  been  to  draw  the 


CONTRACTS  IN  RESTRAINT  OF  TRADE     131 

line  between  what  is  unreasonable  and  what 
is  reasonable.  The  time  has  certainly  come 
in  this  discussion  to  bring  forward  instances 
of  what  the  modern  law  will  permit  as  rea- 
sonable to  contrast  with  the  cases  of  un- 
reasonable restraint  which  have  been  cited. 
It  is  desirable  that  men  should  be  free  to  com- 
pete in  business;  it  is  desirable  also  that 
contracts  relating  to  business  should  be  en- 
forced. There  is  a  conflict  of  policies  here, 
and  some  compromise  is  the  only  way  out. 
As  in  the  case  of  most  legal  distinctions  it  is 
only  a  difference  in  degree  that  separates  ar- 
rangements af  the  forbidden  sort  from  agree- 
ments of  the  permitted  kind.  But  perhaps 
it  will  make  the  discussion  clearer  to  define 
by  catch  phrases  the  two  extremes.  What, 
then,  is  forbidden  is  unreasonable  restraint — 
suppression  of  competition;  while  what  is  per- 
mitted is  reasonable  restriction — regulation 
of  competition.  Phrases  these  are — but  they 
may  serve  to  fix  the  limits  of  the  inquiry. 

A  plain  illustration  of  the  social  advantage 
of  the  reasonable  agreement,  in  ameliorating 
competition,  is  Stovall  v.  McCutcheon  (54 
S.  W.  969),  where  the  court  enforced  an 
agreement  among  the  merchants  in  a  cer- 
tain village  to  close  at  6:30  p.  m,  on  certain 


132    THE  CONTROL  OF  THE  MARKET 

days  at  certain  seasons.  The  opinion  of  Mr. 
Justice  White  was  brief,  but  to  the  point: 
"  While  it  is  true  that  contracts  in  restraint 
of  trade  are  to  be  carefully  scrutinized,  and 
looked  upon  with  disfavor,  all  contracts  in 
restraint  of  trade  are  not  illegal.  The  re- 
straint here  put  is  but  partial, — very  incon- 
siderable. It  is  but  a  few  hours,  at  most, 
each  day,  and  for  three  and  one-half  months, 
during  the  extremely  hot  weather.  It  has 
come  within  the  observation  of  the  members 
of  this  court  that  during  this  season  (May 
15th  to  September)  many  merchants  close 
about  6:30  or  7  p.  m.  This  cannot  be  held 
an  illegal  restraint  of  trade." 

Upon  the  whole,  the  courts  will  go  very 
far  to  support,  as  reasonable,  commercial 
agreements  which  they  believe  to  have  been 
made  in  good  faith,  with  no  idea  to  control 
the  market.  An  illustration  of  this  tendency 
is  the  leading  case  of  Collins  v.  Locke  (L. 
R.  4  A.  C.  674).  The  agreement  there  in 
question  was  made  between  four  parties  then 
engaged  in  carrying  on  the  business  of 
stevedores  in  the  port  of  Melbourne  for  the 
purpose  of  preventing  competition.  The 
principal  shipping  firms  were  by  the  provi- 
sions of  the  agreement  divided  into  four  sets. 


CONTRACTS  IN  RESTRAINT  OF  TRADE     133 

one  set  being  allotted  to  each  party  to  the 
agreement,  if  he  can  get  them;  if  not,  an 
equivalent  was  to  be  given;  other  ships  were 
to  be  taken  in  order  of  arrival,  and  no  other 
party  was  to  interfere.  The  House  of  Lords 
made  a  distinction  between  these  two  clauses 
of  the  agreement.  The  division  of  the  work 
for  the  regular  firms,  if  the  arrangement 
was  satisfactory  to  them,  their  Lordships 
held  reasonable.  "  Each  party  might  in  turn 
derive  benefit  from  this  clause,  and  one  of 
the  four  firms  would  always  get  the  profit 
of  the  ship  stevedored,  though  the  work 
might  be  done  by  another  of  them.  As  re- 
gards the  merchant,  also,  he  can  have  his  ship 
stevedored  by  the  party  whom  he  may  re- 
quire to  do  it;  at  least  there  is  no  prohibition 
against  his  having  it  so  done."  But  the 
positive  restraint  against  working  for  the 
occasional  ships  except  in  rotation  their 
Lordships  held  unreasonable.  "  Such  a  re- 
striction cannot  be  justified  upon  any  of  the 
grounds  on  which  partial  restraints  of  trade 
have  been  supported.  It  is  entirely  beyond 
anything  the  legitimate  interests  of  the  par- 
ties required,  and  is  utterly  unprofitable  and 
unnecessary,  at  least  for  any  purpose  that 
can  be  avowed." 


134    THE  CONTROL  OF  THE  MARKET 
VIII 

This  distinction  between  reasonable  and 
unreasonable  restraint  of  trade  goes  back 
to  the  leading  case  of  Mitchell  v.  Reynolds 
(1  P.  Wms.  181),  where  far  too  elaborate 
tests  were  given  to  determine  whether  an 
agreement  should  be  considered  legal  or  il- 
legal, the  hopeless  attempt  being  made  to 
justify  all  of  the  previous  decisions,  ignoring 
the  fact  that  the  originally  absolute  rule  had 
at  length  been  modified  so  as  to  permit 
business  dealings  of  certain  sorts.  The  actual 
decision,  however,  was  clearly  sound;  and  it 
has  been  followed  in  almost  countless  cases 
of  the  same  sort  ever  since.  It  was  that  a 
merchant  in  selling  out  his  business  could 
agree  not  to  engage  in  a  similar  trade  within 
a  fair  distance  for  a  reasonable  time.  The 
policy  to  make  the  good-will  which  a  trader  has 
built  up  a  salable  asset  overbore  to  that  ex- 
tent the  general  policy  against  contracts  in 
restraint  of  trade.  It  seems  that  such  ar- 
rangements should  not  be  permitted  to  stand 
when  they  are  being  used  by  a  monopo- 
lizing concern  to  perpetuate  its  control  of 
the  market.  There  are  conflicting  authorities 
on  this  point,  but  the  law  probably  is  that 


CONTRACTS  IN  RESTRAINT  OF  TRADE     135 

such  contracts  are  only  permitted  on  grounds 
of  public  policy  anyhow;  and  if  they  are 
being  used  as  part  of  a  scheme  to  monopolize, 
they  should  not  be  enforced. 

No  scheme  to  control  the  market  should 
be  allowed  to  hide  itself  behind  the  doctrine 
of  the  reasonable  character  of  an  ancillary 
agreement,  as  it  was  attempted  to  do  in 
Arnot  V,  Pittston  and  Elmira  Coal  Co.  (68 
N.  Y.  558).  This  was  an  arrangement  be- 
tween Pennsylvania  operators  and  New  York 
dealers  by  which  it  was  agreed  that  no  coal 
should  be  sold  in  the  Elmira  market  except 
under  the  provisions  of  the  contract  through 
the  dealers,  the  operators  undertaking  that 
no  other  coal  should  come  north  of  the  state 
line  during  the  continuance  of  the  agreement. 
Later  the  parties  fell  out,  but  the  court  dis- 
missed them  all,  Mr.  Justice  Rapallo  say- 
ing: "Every  producer  or  vendor  of  coal  or 
other  commodity  has  the  right  to  use  all 
legitimate  efforts  to  obtain  the  best  price 
for  the  article  in  which  he  deals.  But  when 
he  endeavors  to  artificially  enhance  prices 
by  suppressing  or  keeping  out  of  the  market 
the  product  of  others,  and  to  accomplish  that 
purpose  by  means  of  contracts  binding  them 
to  withhold  their  supply,  such  arrangements 


136    THE  CONTROL  OF  THE  MARKET 

are  even  more  mischievous  than  combinations 
not  to  sell  under  an  agreed  price.  Combi- 
nations of  that  character  have  been  held  to  be 
against  public  policy  and  illegal.  If  they 
should  be  sustained,  the  prices  of  articles  of 
pure  necessity,  such  as  coal,  flour,  and  other 
indispensable  commodities,  might  be  arti- 
ficially raised  to  a  ruinous  extent  far  exceed- 
ing any  naturally  resulting  from  the  pro- 
portion between  supply  and  demand." 

IX 

One  of  the  most  important  applications  of 
this  distinction  between  what  is  reasonable 
and  what  is  unreasonable  remains  for  discus- 
sion— the  "  factor's  agreement "  so  called. 
A  common  case  is  Clark  v.  Frank  (17  Mo. 
App.  602),  where  Mr.  Justice  Thompson 
said,  in  passing:  "We  see  no  force  in  the 
argument  that  the  agreement  not  to  sell  the 
goods  at  less  than  the  trade  price  was  void  as 
being  in  restraint  of  trade,  so  far  as  it  related 
to  goods  which  might  be  purchased  of  other 
dealers.  If  it  were  void,  that  fact  would  not 
help  the  defendants,  for  the  plaintiff  merely 
chose  to  say  that  he  would  allow  certain 
drawbacks  upon  the  performance  of  a  certain 
condition." 


CONTRACTS  IN  RESTRAINT  OF  TRADE     137 

Another  instance  of  the  factor's  agreement 
of  equal  importance  is  Houck  &  Co.  v. 
Wright  (77  Miss.  476).  The  facts  here 
also  presented  an  ordinary  business  arrange- 
ment, whereby  the  manufacturers  of  a  certain 
piano  made  an  exclusive  agency  contract  with 
a  certain  dealer.  It  was  urged  in  the  case 
cited  that  this  arrangement,  excluding  as  it 
did  other  persons  from  getting  a  right  to  sell 
this  piano  in  this  territory,  tainted  all  the 
surrounding  transactions  with  restraint  of 
trade.  But  Mr.  Justice  Terral  was  clear 
that  this  was  not  at  all  so.  "  The  arrange- 
ment between  Vose  &  Sons  and  Houck  & 
Co.,  is  entirely  legal.  It  does  not  operate  to 
suppress  competition,  nor  to  regulate  the 
production  or  sale  of  any  commodity.  As 
said  by  counsel  of  appellant,  its  purpose  is 
to  facilitate  and  advance  the  sale  of  pianos. 
It  is  Vose  &  Sons  regulating  their  own  busi- 
ness, endeavoring  thereby  to  sell  as  many 
pianos  as  possible,  and  on  the  best  terms  for 
themselves  and  their  customers." 


All  of  these  cases  show  that,  by  a  well- 
devised  contract,  power  is  often  obtained  to 
control  even  the  modem  market^  wide  as  it 


138  THE  CONTROL  OF  THE  MARKET 

is.  It  is  the  recognition  of  this  possibility 
that  makes  the  law  against  the  conspiracy  to 
control  the  market  so  thoroughgoing.  Any 
scheme  to  monopolize  is  therefore  illegal, 
whatever  may  be  its  outward  seeming. 
Even  the  exceptions  which  have  been  made 
to  the  sweeping  policy  against  all  restraint 
of  trade  cannot  be  claimed  by  those  who  have 
a  scheme  to  monopolize  on  foot.  In  the  case 
of  the  sale  of  a  plant  to  a  trust  the  conve- 
nants  not  to  compete  cannot  be  enforced. 
And  in  the  case  of  a  trust  the  factor's  agree- 
ment should  not  be  enforced.  Upon  this 
whole  matter,  however,  the  operation  of  the 
common  law,  as  has  been  seen,  is  negative. 
It  denies  enforcement  to  all  such  arrange- 
ments; but  it  can  do  little  if  all  within  the 
combination  are  well  satisfied.  To  be  sure, 
it  is  the  common  fate  of  pools  that  when  some 
of  its  members  can  resist  the  advanced  price 
no  longer  they  will  sell  out,  knowing  that 
their  fellow  members  in  the  pool  will  be 
without  legal  redress.  But  some  pools  are  so 
successful  in  getting  big  profits  for  all  con- 
cerned, or  their  members  are  so  loyal,  that  no 
one  breaks  away,  and  prices  stay  up.  Then 
the  public  needs  affirmative  law  for  its  pro- 
tection; and  this  is  the  explanation  of  these 


CONTRACTS  IN  RESTRAINT  OF  TRADE     139 

modem  statutes,  discussed  in  a  later  chapter, 
giving  to  the  prosecuting  officers  power  to 
initiate  proceedings  to  compel  the  dissolution 
of  such  combinations. 


>' 


NOTE 

Other  important  cases  in  addition  to  those  discussed 
in  the  text-book  holding  an  unreasonable  agreement  unen- 
forceable are:  Leighton  v.  Wales,  3  M.  &  W.  545 
(1838);  Oliver  v.  Gilmore,  52  Fed.  562  (1892);  Santa 
Clara  Lumber  Co.  v.  Hayes,  76  Cal.  387  (1888);  Craft 
V.  McConoughy,  79  HI.  346  (1875);  Anderson  v.  Jett, 
89  Ky.  375  (1889);  Cohen  v.  Envelope  Co.,  166  N.  Y. 
292  (1901)  ;  Barataria  Canning  Co.  v.  Joulian,  80  Miss. 
555  (1902);  Central  Ohio  Salt  Co.  v.  Guthrie,  35  Oh. 
St.  666  (1880);  Morris  Run  Coal  Co.  v.  Barclay  Coal 
Co.,  68  Pa.  St.  173  (1871) ;  Fairbank  v.  Leary,  40  Wis. 
637  (1876).  But  see — Perkins  v.  Lyman,  9  Mass.  523 
(1813);  Manchester  &  L.  R.  R.  v.  Concord  R.  R.,  66 
N.  H.  100  (1889). 

Other  important  cases  not  discussed  in  the  text  hold- 
ing a  reasonable  agreement  enforceable  are:  Wickens 
V.  Evans,  3  Y.  &  J.  318  (1829);  Nordenfelt  v.  Maxim 
&  Nordenfelt  Co.  (1894),  A.  C.  535;  Bowling  v.  Taylor, 
40  Fed.  404  (1889);  Grogan  v.  Chaffee,  156  Cal.  6II 
(1909);  Herriman  v.  Menzies,  115  Cal.  I6  (1896); 
Willson  V.  Morse,  117  Iowa,  581  (1902)  ;  Central  Shade 
Roller  Co.  v.  Cushman,  143  Mass.  353  (1887);  National 
Benefit  Co.  v.  Union  Hospital  Co.,  45  Minn.  272 
(1891);  Houck  &  Co.  v.  Wright,  77  Miss.  476  (1899); 
Presbury  v.  Fisher,  18  Mo.  50  (1853);  Bancroft  v. 
Union  Embossing  Co.,  72  N.  H.  402  (1903);  Diamond 
Match  Co.  V.  Roeber,  IO6  N.  Y.  473  (1887).  But  see- 
Lawrence  V.  Kidder,  10  Barb.  641  (1851);  Lufkin  Rule 
Co.  V.  Fringeli,  57  Oh.  St.  596  (1898). 


141 


CHAPTER  VII 

MODERN   FORMS   OF    COMBINATIONS 


Notwithstanding  all  the  law  against 
agreements  in  restraint  of  trade  which  has 
just  been  recited,  the  present  generation  has 
seen  in  the  rise  of  the  trusts  the  greatest 
movement  toward  consolidation  which  is 
recorded  in  economic  history.  But  this  con- 
solidation was  not  accomplished  without  a 
reckoning  with  the  law.  In  the  face  of  this 
adverse  law  the  ingenuity  of  attorneys,  act- 
ing for  clients  who  wished  to  bring  about  a 
community  of  interests,  has  been  taxed  to  the 
utmost ;  and  at  best  their  schemes  have  proved 
only  temporary  expedients.  In  this  era  of 
consolidation  there  has  been  a  change  of  base 
at  least  four  times  during  this  brief  period: 
First,  the  pool — a  direct  agreement  between 
the  corporations  concerned  for  their  joint 
operation  to  a  certain  extent;  second,  the 
trust — an  indirect  arrangement  between  the 

142 


MODERN  FORMS  OF  COMBINATIONS     143 

shareholders  to  control  the  action  of  their 
corporations;  third,  the  holding  corporation 
— a  central  company  to  hold  the  shares  of  the 
constituent  companies;  and  fourth,  the  single 
corporation,  which  huys  the  properties  of  the 
combining  corporations  outright.  Despite 
the  many  cases  relating  to  these  four  typical 
forms  of  intercorporate  relationship,  the 
problem  is  still,  to  a  large  extent,  unsolved 
as  to  how  various  corporations  may  be  con- 
centrated under  one  control. 


n 

It  is  hardly  fair  to  the  legal  profession  to 
say  that  it  entertained  a  real  expectation  for 
the  success  of  any  simple  form  of  pooling 
arrangement  during  the  last  two  decades. 
In  the  face  of  so  much  express  authority 
against  combinations  in  restraint  of  trade, 
clients  must  have  been  advised  that  to  form 
pools  was  to  run  for  luck.  Perhaps  every 
member  would  live  up  to  his  agreement;  but 
there  was  no  remedy  at  law  if  anyone  did 
not.  Perhaps  the  proceeds  of  the  pooling 
would  be  fairly  divided;  but  the  court  would 
not  order  an  accounting.  And  experience 
showed  again  and  again  that,  without  legal 


144    THE  CONTROL  OF  THE  MARKET 

obligation,  there  were  always  members  in  any 
such  pool  treacherous  enough  to  break  with 
it.  Moreover,  there  was  the  corporation 
law  to  reckon  with,  as  well  as  the  combina- 
tion law.  It  has  always  been  held  to  be 
against  the  policy  of  the  corporation  law  for 
corporations  to  surrender  their  independence 
by  entering  a  pool.  Although  the  conse- 
quences of  this  were  not  quite  so  dire  as  in 
the  case  of  illegal  combinations,  still  no 
corporation  could  be  held  to  any  agreement 
of  this  sort. 

The  leading  case  on  the  general  principle 
against  the  combination  of  corporations  in  a 
partnership  or  any  other  association  is  Whit- 
tenton  Mills  v.  Upton  (10  Gray  582).  In 
that  case  the  court — Thomas,  J. — held  that, 
as  a  matter  of  law,  a  corporation  could,  under 
no  circumstances,  beneficial  to  it  or  detri- 
mental to  it,  and  for  no  purpose,  legal  or 
illegal,  be  a  member  of  a  partnership.  "  The 
effect  of  all  our  statutes,  the  settled  policy 
of  our  Legislature,  for  the  regulation  of 
manufacturing  corporations  is  that  the  cor- 
poration is  to  manage  its  affairs  separately 
and  exclusively,  certain  powers  to  be  exer- 
cised by  the  stockholders,  and  others  by  offi- 
cers who  are  the  servants  of  the  corporation 


MODERN  FORMS  OF  COMBINATIONS     145 

and  act  in  its  name  and  behalf.  And  the 
formation  of  a  contract,  or  the  entering  into 
a  relation,  by  which  the  corporation  or  the 
officers  of  its  appointment  should  be  divested 
of  that  power,  or  by  which  its  franchise 
should  be  vested  in  a  partner  with  equal 
power  to  direct  and  control  its  business,  is 
entirely  inconsistent  with  that  policy." 

When,  therefore,  corporations  sign  agree- 
ments to  carry  on  their  business  in  common, 
the  scheme  is  always  held  illegal.  This  is 
sufficiently  shown  by  the  case  of  Mallory  v. 
Hanaur  Oil  Works  (86  Tenn.  598).  This 
was  a  "  combination  syndicate,"  arranged  be- 
tween four  corporations  engaged  in  manu- 
facturing cottonseed  oil  at  Memphis.  The 
contracting  mills  agreed  to  select  a  commit- 
tee, composed  of  representatives  from  each 
corporation,  and  to  turn  over  to  this  com- 
mittee the  properties  and  machinery  of  each 
mill,  to  be  managed  and  operated  by  this 
committee,  through  officers,  agents,  and  em- 
ployees selected  by  them,  for  the  common 
benefit,  the  profits  and  losses  of  such  opera- 
tions to  be  shared  in  proportions  agreed 
upon.  In  declaring  this  arrangement  illegal 
Mr.  Justice  Lurton  said :  "  The  decided 
weight  of  authority  is  that  a  corporation  has 


146    THE  CONTROL  OF  THE  MARKET 

not  the  power  to  enter  a  partnership,  either 
with  other  corporations  or  with  individuals. 
It  is  unnecessary  to  consider  this  contract  as 
constituting  a  mere  traffic  arrangement;  for 
the  conclusion  already  announced  that  it  was 
an  effort  to  form  a  partnership,  determines 
that  in  its  scope  and  effect  it  sought  to  accom- 
plish much  more  than  would  be  understood 
by  the  phrase  traffic  arrangement." 


ni 

Emery  v.  Candle  Company  (47  Oh.  St. 
320)  is  a  typical  form  of  pooling  agreement. 
An  association  was  shown  in  that  case  which 
included  ninety-five  per  cent,  of  the  manu- 
facturers of  candles  in  the  United  States. 
The  members  of  the  association  surrendered 
their  freedom  of  action  only  to  this  extent, 
that  they  were  required  to  pay  into  the 
treasury  two  and  one-half  cents  per  pound 
on  every  pound  of  candles  disposed  of  on 
their  own  account.  Whether  they  sold  any 
candles  or  not,  they  received  a  share  in  the 
profits  of  the  pool.  This  plan  was  thus  self- 
acting;  it  was  to  the  interest  of  each  member 
to  remain  idle  when  the  price  was  low,  to 
operate   only  if  the  price  were  high.     The 


MODERN  FORMS  OF  COMBINATIONS      147 

expected  result  followed;  the  production  of 
candles  decreased,  the  price  of  candles  in- 
creased during  the  whole  existence  of  the 
association.  The  court  pronounced  the  ar- 
rangement bad  altogether:  "We  are  of  the 
opinion  that  the  suit  cannot  be  maintained, 
for  the  reason  that  the  objects  of  the  associa- 
tion were  contrary  to  public  policy  and  in 
no  way  to  be  aided  by  the  courts.  No  re- 
covery can  be  had  except  by  giving  effect  to 
the  terms  of  the  agreement.  The  action  is 
in  substance  a  suit  against  the  association  to 
recover  a  sum  due  the  plaintiff  under  the 
terms  on  which  the  association  was  formed. 
Its  suit  is  to  recover  its  portion  of  the  ill- 
gotten  gains." 

The  principal  rule  against  restraint  of 
trade  thus  remains  practically  unaffected  by 
any  further  modifications  than  those  which 
have  been  mentioned.  Nester  v.  Continental 
Brewing  Company  (161  Pa.  St.  473)  is 
representative  of  the  class  of  cases  in  ques- 
tion. The  bill  set  forth  that  a  Brewers' 
Association  of  Philadelphia  had  been  formed 
under  articles  of  agreement  in  writing  by 
forty-five  brewers  of  Philadelphia,  individ- 
uals, firms,  and  corporations.  By  the  prin- 
cipal section  of  the  agreement  each  member 


148    THE  CONTROL  OF  THE  MARKET 

of  the  association  agreed  not  to  sell  any  beer 
to  any  new  trade,  or  to  any  customer  of  any 
brewer  that  belonged  to  the  association.  A 
summary  from  the  opinion  of  Mr.  Justice 
Sterrett  follows:  "  The  test  question  in  every 
case  like  the  present  is  whether  or  not  a 
contract  in  restraint  of  trade  exists  which  is 
injurious  to  the  public  interests;  if  injurious, 
it  is  void  as  against  public  policy.  Courts 
will  not  stop  to  inquire  as  to  the  degree  of 
injury  inflicted.  It  is  enough  to  know  that 
the  natural  tendency  of  such  contracts  is  in- 
jurious. So  if  the  natural  tendency  of  such 
contracts  is  to  injuriously  affect  public  in- 
terests, the  form  and  declared  purpose  are 
immaterial.  Courts  will  not  lend  their  aid 
in  illegal  transactions  no  matter  how  dis- 
guised." 

It  is  to  be  noted  again  that  when  a  com- 
bination in  restraint  of  trade  is  once  proved 
to  be  such,  outlawry  is  declared.  It  can 
bring  no  suit  against  those  in  it;  neither  can 
they  sue  it.  The  courts  will  have  nothing 
to  do  with  association  or  associates.  This  is 
the  penalty,  that  the  loss  must  lie  where  it 
falls;  and  this  policy  is,  in  itself,  often  one 
of  the  strongest  of  deterrents.  Thus  any 
member   of   the    association   may    withdraw 


MODERN  FORMS  OF  COMBINATIONS      149 

whenever  it  suits  his  interest  to  do  so,  a  re- 
sult that  minimizes  the  harm  that  such  a 
combination  may  effect.  For  experience 
shows  that  the  result  is  that  competition  still 
goes  on  surreptitiously,  despite  the  agree- 
ment, since  every  active  member  is  strength- 
ening his  position  in  preparation  for  an  ulti- 
mate withdrawal.  And  at  the  psychological 
moment  some  member,  who  has  accumulated 
a  large  stock  while  production  has  been  cur- 
tailed, will  sell  out  at  near  to  the  top  price 
and  break  the  market,  thus  causing  his  asso- 
ciates irreparable  losses. 


IV 

Such  was  the  state  of  the  law  when  the 
trust  agreement  was  discovered  by  a  startled 
community.  The  material  features  of  that 
scheme  are  now  well  known;  the  first  great 
case  on  this  scheme.  People  v.  North  River 
Sugar  Refining  Company  (121  N.  Y.  582), 
brought  out  the  details  of  the  whole  matter. 
All  the  shares  of  the  capital  stock  of  all  of 
the  confederating  corporations  were  trans- 
ferred to  a  board  of  trustees.  These  trustees 
issued  trust  certificates  in  lieu  of  these  shares, 
thus  reserving  the  voting  rights  in  all  of  the 


160    THE  CONTROL  OF  THE  MARKET 

corporations.  As  a  cover  for  the  scheme  all 
of  the  several  corporations  remained  in  exist- 
ence; and  in  form  each  conducted  its  own 
business  without  any  cross  agreements  among 
themselves.  In  one  of  the  most  perfect  opin- 
ions in  our  books  Mr.  Justice  Finch  held  the 
trust  agreement  invalid.  He  concluded  thus: 
"  And  here,  I  think,  we  gain  a  definite  view 
of  the  injurious  tendencies  developed  by  its 
organization  and  operation,  and  of  the  public 
interests  which  are  menaced  by  its  action. 
As  corporate  grants  are  always  assumed  to 
have  been  made  for  the  public  benefit,  any 
conduct  which  destroys  their  normal  func- 
tions, and  maims  and  cripples  their  separate 
activity,  and  takes  away  their  free  and  in- 
dependent action,  must  so  far  disappoint  the 
purpose  of  their  creation  as  to  affect  un- 
favorably the  public  interest.  It  is  not  a 
sufficient  answer  to  say  that  similar  results 
may  be  lawfully  accomplished  by  an  in- 
dividual. And  so  we  have  reached  our  con- 
clusion, and  it  appears  to  us  to  have  been 
established,  that  the  defendant  corporation 
has  violated  its  charter  and  failed  in  the  per- 
formance of  its  corporate  duties,  and  that  in 
respects  so  material  and  important  as  to  jus- 
tify   a    judgment    of    dissolution.      Having 


MODERN  FORMS  OF  COMBINATIONS     151 

reached  that  result,  it  becomes  needless  to 
advance  into  the  wider  discussion  over 
monopolies  and  competition  and  restraint  of 
trade  and  the  problems  of  political  economy." 
A  few  years  later  the  suit  to  dissolve  the 
first  of  all  the  trusts,  the  Standard  Oil 
alliance,  was  decided  in  favor  of  the  State. 
In  State  v.  Standard  Oil  Company  (49  Oh. 
St.  137)  the  Attorney-General  of  Ohio 
commenced  this  action  to  oust  the  defendant 
of  the  right  to  be  a  corporation  on  the  ground 
that  it  has  abused  its  corporate  franchises  by 
becoming  party  to  an  agreement  that  is 
against  public  policy.  The  agreement  shown 
in  the  case  provided  that  almost  all  the  stock- 
holders in  the  defendant  company  had  trans- 
ferred their  stocks  to  certain  trustees,  as  had 
nearly  forty  other  corporations  engaged  in 
the  same  business  in  pursuance  of  the  same 
scheme.  All  of  the  stockholders  of  all  the 
companies  involved  received  in  return  for 
their  shares  trust  certificates  issued  by  the 
trustees.  The  trustees  thereupon  elected 
themselves  to  be  a  majority  of  the  directors 
of  each  of  the  constituent  companies,  and 
thereby  controlled  the  conduct  of  each,  and 
so  of  all.  Minshall,  who  wrote  the  opinion, 
rested  the  decision  upon  broader  grounds  of 


162    THE  CONTROL  OF  THE  MARKET 

public  policy  than  did  Finch.  "  Much  has  been 
said  in  favor  of  the  objects  of  the  Standard 
Oil  Trust,  and  what  it  has  accomplished.  It 
may  be  true  that  it  has  improved  the  quality 
and  cheapened  the  costs  of  petroleum  and  its 
products  to  the  consumer.  But  such  is  not 
one  of  the  usual  or  general  results  of  a  monop- 
oly; and  it  is  the  policy  of  the  law  to  regard, 
not  what  may,  but  what  usually  happens. 
Experience  shows  that  it  is  not  wise  to  trust 
human  cupidity  where  it  has  the  opportunity 
to  aggrandize  itself  at  the  expense  of  others. 
The  claim  of  having  cheapened  the  price  to 
the  consumer,  is  the  usual  pretext  on  which 
monopolies  of  this  kind  are  defended.  It  is 
no  answer  to  say  that  this  monopoly  has  in 
fact  reduced  the  price.  That  policy  may  have 
been  necessary  to  crush  competition.  The 
fact  exists  that  it  rests  in  the  discretion  of  this 
company  at  any  time  to  raise  the  price  to  an 
exorbitant  degree.  A  society  in  which  a  few 
men  are  the  employers  and  the  great  body 
are  merely  employees  or  servants,  is  not  the 
most  desirable  in  a  republic;  and  it  should 
be  as  much  the  policy  of  the  laws  to  multiply 
the  numbers  engaged  in  independent  pur- 
suits or  in  the  profits  of  production,  as  to 
cheapen  the  price  to  the   consumer.     Such 


MODERN  FORMS  OF  COMBINATIONS     153 

policy  would  tend  to  an  equality  of  fortunes 
among  its  citizens,  thought  to  be  so  desirable 
in  a  republic,  and  lessen  the  amount  of  pau- 
perism and  crime.  By  the  invariable  laws  of 
human  nature,  competition  will  be  excluded 
and  prices  controlled  in  the  interest  of  those 
connected  with  the  combination  or  trust." 

From  the  point  of  view  of  those  who  had 
a  scheme  to  monopolize  on  foot  this  trust 
device  was  excellent.  It  was  centralized  in 
its  control  and  secret  in  its  doings.  It  left 
the  power  of  control  with  the  inner  circle, 
while  enabling  them  to  market  as  many  se- 
curities as  they  pleased.  But  after  these  two 
decisions  it  was  recognized  that  it  must  be 
abandoned.  The  case  was  now  hopeless  at 
law.  It  had  been  held  against  the  law  govern- 
ing corporations  in  that  it  was  ultra  vires  for 
a  company  so  to  surrender  its  independence. 
It  was  also  a  void  arrangement  by  the  law 
against  combinations  in  restraint  of  trade. 
The  courts  looked  through  the  outer  forms 
into  the  inner  facts.  All  the  cleverness  that 
went  to  form  the  trust — and  all  the  ingenuity 
with  which  it  was  defended — were  lost  upon 
the  courts.  The  possibilities  of  injury  to  both 
public  and  private  interests  were  too  great 
for  the  scheme  to  receive  any  countenance 


154  THE  CONTROL  OF  THE  MARKET 

from  the  law.  The  phght  of  the  minority- 
stockholders  was  hopeless  unless  the  law 
should  declare  the  scheme  bad;  for  the  trust 
could  close  down  a  plant  where  there  was  a 
large  and  recalcitrant  minority,  which  would 
not  exchange  its  shares  for  trust  certificates, 
until  these  stockholders  were  starved  out. 
And  from  the  point  of  view  of  the  State  the 
scheme  was  almost  beyond  control,  as  its 
accounts  could  be  juggled,  and  responsibility 
for  wrong-doing  could  not  be  fixed. 


A  transition  period  of  a  few  years  followed 
upon  the  dissolution  of  the  trusts.  The  orig- 
inal owners  still  had  the  properties;  and  the 
common  danger  held  them  together,  tem- 
porarily at  least.  Meantime  the  lawyers  were 
casting  about  for  some  new  scheme  for  com- 
bining interests  which  would  have  legal  sanc- 
tion. The  stress  of  the  situation  demanded 
forms  of  reorganization  which  would  bear  the 
scrutiny  of  the  courts.  The  first  schemes 
were  rather  obvious  attempts  to  make  use  of 
some  established  arrangement  as  a  cover  from 
combination.  Rather  absurd  these  were, 
doomed  to  early  exposure  from,  the  Outset. 


MODERN  FORMS  OF  COMBINATIONS      155 

For  the  law  making  unenforceable  contracts 
which  tended  to  restrain  trade  could  not  thus 
be  evaded.  What  could  not  be  done  directly, 
could  not  be  brought  about  by  any  such  in- 
direction. The  law  is  not  so  easy  to  evade 
as  laymen  think,  particularly  when  there  is 
a  public  policy  behind  the  law. 

One  of  the  schemes  which  was  tried  out  was 
the  making  of  simultaneous  exclusive  con- 
tracts with  a  common  central  agent.  In  Cum- 
mings  V.  Union  Bluestone  Company  (164  N. 
Y.  401 ) ,  for  example,  the  principal  producers 
of  this  stone  were  combined  in  an  association 
to  regulate  prices,  while  a  separate  company 
was  made  the  exclusive  sales  agent  of  each 
participant.  The  New  York  court  held  this 
arrangement  illegal  altogether.  Mr.  Justice 
Landon  said:  "The  plaintiff  urges  that  it 
was  a  question  of  fact  for  the  jury,  and  not 
of  law  for  the  court,  whether  the  contract  was 
simply  to  secure  reasonable  prices,  or  to  ex- 
tort from  the  public  unreasonable  prices.  It 
may  be  conceded  that  one  of  its  purposes  was 
to  enable  the  parties  to  obtain  reasonable 
prices,  but  it  gave  them  the  power  to  fix 
arbitrary  and  unreasonable  prices.  The  scope 
of  the  contract  and  not  the  possible  self- 
restraint  of  the  parties  to  it,  is  the  test  of  its 


166    THE  CONTROL  OF  THE  MARKET 

validity.  They  could  raise  prices  to  what  they 
supposed  the  market  would  bear,  and  as  they 
expected  to  supply  nearly  the  entire  demand 
of  the  market,  the  temptation  to  extortion 
was  unusually  great." 

Another  scheme,  more  ingenious  yet,  was 
the  "  dead  lease "  seen  in  Clark  v.  Need- 
ham  (125  Mich.  84).  The  arrangements 
made  involved  two  leases,  one  from  the 
party  who  was  to  sell  out  one  branch 
of  his  business,  absolute  in  form  at  a  high 
rental  to  be  paid  by  the  buyer ;  the  other  from 
the  buyer  back  to  the  seller  at  nominal  rental, 
with  covenants  against  engaging  in  that  line 
of  business.  The  court  was  quick  to  see 
through  this  elaborate  plan;  Mr.  Justice 
Grant  said  on  that  point:  "  The  plain  object 
of  the  agreement  was  to  substantially  close 
this  part  of  plaintiffs'  business,  and  to  give 
defendants  a  monopoly  of  it.  The  parties 
evidently  recognized  the  invalidity  of  such  a 
contract,  put  in  plain  and  unequivocal  lan- 
guage, and  sought  to  evade  it  by  these  two 
so-called  leases.  The  arrangement  was  a 
bare  subterfuge  to  evade  the  law.  Such 
contracts  tend  to  destroy  competition  and 
create  monopolies,  and  are  void." 

It  became  altogether  a  question  of  legality 


MODERN  FORMS  OF  COMBINATIONS      157 

— which  is  a  thing  more  desired  by  the 
captains  of  industries  than  one  who  reads  the 
sensational  magazines  might  suppose.  It  is 
true  that  without  legal  sanction  much  may 
be  done  under  a  gentlemen's  agreement;  but 
without  legality  in  organization  there  is  no 
security.  What  depends  upon  individual 
agreement  is  subjected  to  the  chances  of  per- 
sonality. Nor  can  there  be  any  permanence 
unless  the  arrangement  is  perpetual,  with- 
out regard  to  the  death  of  anyone.  And 
what  is  of  more  importance,  without  security 
and  permanence  there  can  be  no  issue  of 
securities,  or  market  of  them. 


▼I 

Meanwhile  the  more  eminent  counsel 
who  had  the  great  interests  to  advise  were 
engaged  in  larger  plans,  more  feasible  at 
law  because  devised  with  more  insight. 
Their  idea  was  to  create  a  holding  corpora- 
tion, a  new  central  body  which  should  ac- 
quire a  majority  of  the  stocks  of  the  con- 
stituent companies.  This  scheme  suited  their 
clients  well;  indeed,  it  was  doubtless  the 
clients  that  decided  upon  its  adoption.  For 
the  holding  corporation   possessed  possibili- 


168    THE  CONTROL  OF  THE  MARKET 

ties  for  manipulation  pleasant  to  contem- 
plate; the  marketable  issues  could  be  doubled 
by  making  the  stock  of  the  holding  corpo- 
ration twice  that  of  the  constituent  com- 
panies; and  as  the  operations  of  the  business 
could  be  concealed  between  the  accounts  of 
the  holding  company  and  the  constituent 
companies,  there  would  be  nothing  to  fear 
from  the  publication  of  formal  statements. 
There  were  obviously  legal  difficulties.  In 
most  states  by  the  common  law  it  was  beyond 
the  powers  of  one  corporation  to  hold  the 
stock  of  another  for  the  purpose  of  opera- 
tion, for  the  reasons  advanced  in  the  brief 
case  which  follows.  Milbank  v.  New  York, 
Lake  Erie,  and  Western  Railroad  (64  How- 
Pr.  20)  was  an  action  brought  by  minority 
shareholders  of  the  Buffalo,  New  York,  and 
Erie  Railroad  to  restrain  the  defendant  rail- 
road from  voting  the  stock  which  it  had  ac- 
quired to  control  the  railroad  in  which  the 
plaintiffs  held  their  stock.  Haight,  the  pre- 
siding judge,  gave  the  relief  asked,  explaining 
the  case  thus:  "  In  the  case  under  considera- 
tion, the  New  York,  Lake  Erie,  and  West- 
ern Company  have  acquired  by  purchase  the 
majority  of  all  the  stock  issued  by  the 
Buffalo,  New  York,  and  Erie  Railroad.    If 


MODERN  FORMS  OF  COMBINATIONS      159 

its  officers  are  permitted  to  vote  thereon,  they 
can  elect  a  board  of  directors  of  their  own 
choosing.  It  would  then  be  for  the  interests 
of  the  New  York,  Lake  Erie,  and  Western 
Railroad  Company  to  have  the  Buffalo,  New 
York,  and  Erie  Company  managed  and  con- 
trolled in  the  interests  of  the  former  company. 
This  would  be  liable  to  result  in  injury  to 
these  plaintiffs  and  their  fellow  stockholders, 
and  if  so  they  have  a  right  to  complain." 

Although  this  decision  represented  the  com- 
mon law,  the  statute  law  in  some  states,  and 
special  charters  in  others,  permitted  corpora- 
tions to  be  organized  to  hold  the  stocks  of 
other  corporations.  This,  however,  was  at 
best  only  a  solution  of  one  of  the  difficulties; 
another  remained.  Granted  that  the  cor- 
poration was  enabled  to  act  without  violation 
of  the  corporation  law,  there  was  the  com- 
bination law  still  to  reckon  with.  Thus  in 
People  V.  Chicago  Gas  Trust  Company  (130 
111.  268)  a  corporation  organized  with  power 
to  hold  the  stocks  of  gas  companies  bought  at 
once  a  majority  of  all  the  stocks  of  the  four 
principal  gas  companies  operating  in  Chicago. 
But  the  court  on  quo  warranto  held  this 
scheme  to  be  an  abuse  of  the  powers  granted 
in  the  charter,  Mr.  Justice  Macgruder    say- 


160    THE  CONTROL  OF  THE  MARKET 

ing:  "  The  control  of  the  four  companies  by 
the  appellee — an  outside  and  independent 
corporation — suppresses  competition  between 
them,  and  destroys  their  diversity  of  interest 
and  all  motive  for  competition.  There  is  thus 
built  up  a  virtual  monopoly  in  the  manu- 
facture and  sale  of  gas.  Whatever  tends  to 
prevent  competition  between  those  engaged 
in  a  public  emplojnnent,  or  business  impressed 
with  a  public  character,  is  opposed  to  public 
policy  and,  therefore,  unlawful.  Whatever 
tends  to  create  a  monopoly  is  unlawful  as 
being  contrary  to  public  policy." 


VII 

All  this  time  it  had  been  recognized  that 
there  was  a  safer  way,  if  one  chose  to  take  it. 
The  approved  form  among  lawyers  during  the 
last  few  years  for  making  a  consolidation 
of  interests  is  by  the  formation  of  a  single 
gigantic  corporation  intended  to  take  over, 
by  purchase,  all  the  different  concerns  that 
are  to  be  brought  together.  Several  courts 
have  already  dealt  with  the  legality  of  this 
operation.  In  Trenton  Potteries  Company  v. 
Oliphant  (58  N.  J.  Eq.  507)  a  conveyance 
had  been  made  by  the  owners  of  a  pottery 


MODERN  FORMS  OF  COMBINATIONS      161 

business  to  the  Trenton  Potteries  Company, 
which  carried  with  it  covenants  by  the  sellers 
not  to  compete  against  the  business  sold.  As 
the  good  will  was  included  in  the  transfer, 
these  covenants  would  be  good,  if  the  whole 
transaction  were  unobjectionable.  The  diffi- 
culty was  that  the  buying  corporation  had 
been  formed  for  the  express  purpose  of  tak- 
ing over  various  competing  plants,  and  that 
the  object  aimed  at  by  the  parties  was  to 
secure  power  to  suppress  competition  and  to 
control  production.  Upon  this  point  Mr. 
Chief  Justice  Magie  made  these  observa- 
tions: "  Contracts  by  independent  and  un- 
connected manufacturers  or  traders  looking 
to  the  control  of  the  prices  of  their  com- 
modities, either  by  limitation  o^  production, 
or  by  restriction  on  distribution,  or  by  ex- 
press agreement  to  maintain  specified  prices, 
are  without  doubt  opposed  to  public  policy. 
But  appellant  is  a  corporation  and  not 
an  individual.  Corporations,  however,  may 
lawfully  do  any  acts  within  the  corporate 
powers  conferred  on  them  by  legislative  grant. 
Under  our  liberal  corporation  laws,  corporate 
authority  may  be  acquired  by  aggregations  of 
individuals,  organized  as  prescribed  to  carry 
on  almost  every  conceivable  manufacture  or 


162  THE  (Control  of  the  market 

trade:  such  corporations  are  empowered  to 
purchase,  hold,  and  use  property  appropriate 
to  their  business.  Under  such  powers  it  is 
obvious  that  a  corporation  may  purchase  the 
plant  and  business  of  competing  individuals 
and  concerns." 

This  is  not  unquestioned  law  by  any  means. 
A  case  directly  opposed  is  Distilling  and 
Cattle  Feeding  Company  v.  People  (156  111. 
448).  This  case  arose  after  the  reorganiza- 
tion of  the  Whisky  Trust  into  an  operating 
corporation.  The  regular  forms  had  been 
gone  through  with,  and  the  title  to  the  prop- 
erties had  been  duly  made  over  to  the  new  cor- 
poration in  exchange  for  the  outstanding  trust 
certificates.  But  the  Illinois  court  could  see  in 
this  change  of  form  nothing  that  was  substan- 
tial. As  Mr.  Justice  Bailey  said:  "  The  trust 
and  its  operations  are  to  be  carried  on  in  the 
same  way,  for  the  same  purposes,  and  by  the 
same  agencies,  as  before.  The  trust,  then, 
being  repugnant  to  public  policy  and  illegal, 
it  is  impossible  to  see  why  the  same  is  not 
true  of  the  corporation  which  succeeds  to  it 
and  takes  its  place.  The  control  exercised 
over  the  distillery  business  of  the  country — 
over  production  and  prices — and  the  virtual 
monopoly   formerly   held   by   the   trust,   are 


MODERN  FORMS  OF  COMBINATIONS     163 

in  no  degree  changed  or  relaxed,  but  the 
methods  and  purposes  of  the  trust  are  per- 
petuated and  carried  out  with  the  same  per- 
sistence and  vigor  as  before  the  organization 
of  the  corporation.  There  is  no  magic  in  a 
corporate  organization  which  can  purge  the 
trust  scheme  of  its  illegality,  and  it  remains 
as  essentially  opposed  to  the  principles  of 
sound  public  policy  as  when  the  trust  was  in 
existence.  It  was  illegal  before  and  is  illegal 
still,  and  for  the  same  reasons."  If  this 
decision  be  good  law,  any  great  corporation 
can  be  dissolved  by  reason  of  its  past  history. 
But  even  if  this  can  be  done,  would  it  not  be 
better  to  settle  the  matter  upon  the  basis  of 
its  present  conduct? 

VIII 

From  step  to  step  in  this  succession  there 
is  a  movement  toward  integration.  Now  that 
the  end  of  that  economic  evolution  has  been 
reached  in  the  single  corporation,  the  law 
against  combinations  in  restraint  of  trade  may 
perhaps  cease  to  operate.  It  has  done  a  good 
work  in  forcing  those  who  wish  to  bring  to- 
gether various  corporations  into  greater  enter- 
prises to  organize  in  an  open  manner  under 
the  general  corporation  laws.     Now  at  last 


164.    THE  CONTROL  OF  THE  MARKET 

the  State  may  impose  such  special  regulation 
upon  these  industrial  concerns  as  the  situation 
requires.  The  problem  is  therefore  much 
simplified  since  the  time  of  the  trusts.  It 
has  been  reduced  to  the  lowest  terms  by  this 
praiseworthy  activity  of  the  law  in  insisting 
that  all  combinations  of  every  stripe  should  be 
destroyed.  Now  that  we  have  the  fruits  of 
that  first  victory  in  the  enforced  form  of  the 
large  corporation,  we  may  hold  a  council 
of  war  during  this  armistice.  Shall  these 
great  corporations  be  destroyed,  or  shall 
they  be  regulated?  That,  it  is  submitted,  is 
the  trust  problem  in  its  latest  phase.  All  of 
the  law  for  the  destruction  of  combinations  in 
restraint  of  trade  is  to  a  certain  extent  super- 
seded, because  the  new  monopoly  is  no  longer 
in  the  form  of  a  combination.  On  the  other 
hand,  the  law  for  the  regulation  of  businesses 
affected  with  a  public  interest  can  now  for 
the  first  time  be  effectively  applied  to  the 
whole  field  of  virtual  monopoly. 


NOTE 

As  the  problems  discussed  in  the  text  are  by  no  means 
settled  as  yet,  some  leading  cases  as  to  each  of  the  four 
principal  types  of  industrial  combination  are  subjoined. 

I.    THE    POOL   HELD   ILLEGAL 

United  States  v.  Trans-Missouri  Freight  Assn.,  166 
U.  S.  290;  Addystone  Pipe  Co.  v.  United  States,  175 
U.  S.  211  (1899)  ;  Getz  v.  Federal  Salt  Co.,  147  Cal.  115 
(1905);  Leonard  v.  Abner  Drury  Co.,  25  D.  C.  App. 
Cas.  161  (1905);  White  Star  Line  v.  Star  Line,  141 
Mich.  604  (1905);  Emery  v.  Ohio  Candle  Co.,  47  Oh. 
St.  320  (1892);  Nester  v.  Continental  Brewing  Co.,  l6l 
Pa.  St.  473  (1894);  Coquard  v.  National  Linseed  Oil 
Co.,  171  111.  480  (1898). 

II.    THE  TRUSTS  HELD  ILLEGAL 

American  Preserves  Trust  v.  Taylor  Mfg.  Co.,  46 
Fed.  152  (1891);  Georgia  Trust  Co.  v.  State,  109  Ga. 
786  (1899)  ;  State  v.  American  Cotton  Oil  Trust,  40  La. 
Ann.  8  (1888);  Southeastern  Securities  Co.  v.  State,  91 
|Miss.  195  (1907);  State  v.  Nebraska  Distilling  Co.,  29 
Neb.  700  (1890)  ;  People  v.  North  River  Sugar  Refining 
Co.,  121  N.  Y.  582  (1890);  State  v.  Standard  OQ  Co., 
49  Oh.  St.  187  (1892). 

III.    HOLDING    CORPORATIONS    HELD    ILLEGAL 

Northern  Securities  Co.  v.  United  States,  198  U.  S. 
197  (1904);  Standard  Oil  Co.  v.  United  States,  U.  S. 

165 


166  NOTE 

(1911);  Dunbar  v.  American  Telephone  Co.,  224  111. 
9  (1906);  MacGinniss  v.  Boston  &  M.  Copper  Co.,  29 
Mont.  428  (1904);  State  v.  Oil  Co.,  217  Mo.  1  (1909); 
State  V.  Virginia  Carolina  Chemical  Co.,  71  S.  C.  544 
(1904). 

IV.    AS    TO    THE    ILLEGALITY    OP    THE    SINGLE    CORPORATION 

The  following  cases  seem  to  hold  that  it  is  illegal: 
Distilling  Co.  v.  People,  156  111.  448  (1895);  Attorney- 
General  V.  Booth,  143  Mich.  89  (1906);  National  Lead 
Co.  V.  Grote  Paint  Store  Co.,  80  Mo.  App.  247  (1899)- 
But  the  following  cases  hold  it  to  be  legal:  Central 
Shade  Roller  Co.  v.  Cushman,  143  Mass.  353  (1887); 
Trenton  Potteries  Co.  v.  Oliphant,  58  N.  J.  Eq.  507 
(1899);  Clancey  v.  Onondaga  Salt  Co.,  62  Barb.  395 
(1862) ;  Oakdale  Mfg.  Co.  v.  Garst,  18  R.  I.  484  (1896). 


CHAPTER  VIII 

BUSINESSES  AFFECTED  WITH  A  PUBLIC 
INTEREST 


The  modern  trust  will,  therefore,  soon 
take  the  form  of  the  single  corporation, 
dominating  its  market.  Such  corporations, 
however  large,  will  apparently  stand  before 
the  law  as  other  corporations.  There  can  be 
no  great  expectation  (even  if  it  were  thought 
desirable)  that  these  great  aggregations  of 
capital  can  be  destroyed  as  illegal  in  point  of 
organization.  But  the  great  corporation  with 
substantial  control  of  its  market  differs 
fundamentally  from  the  small  one  which  is 
simply  a  factor  in  competition.  Our  law 
from  time  immemorial  has  subjected  those 
who  had  monopoly,  whoever  they  might  be, 
to  an  extraordinary  system  of  regulation,  as 
compared  with  the  virtual  freedom  accorded 
to  those  who  had  no  control  of  their  market. 
That  great  corporations  are  to  play  a  great 
part  in  the  industries  of  this  country  for  an 

167 


168    THE  CONTROL  OF  THE  MARKET 

indefinite  future,  anyone  who  has  observed 
the  course  of  economic  evolution  during  the 
past  generation  must  see.  And  now  that  they 
have  arrived  at  substantial  dominance  over 
their  respective  markets,  they  should  be  regu- 
lated, as  established  monopolies  have  always 
been  regulated.  This  regulation  by  law  has 
always  been  the  policy  of  the  State  in  dealing 
with  any  business  which  has  so  far  attained 
control  of  its  market  as  to  be  affected  with 
a  public  interest.  Indeed,  such  businesses 
have  been  spoken  of  from  time  immemorial 
as  public  employments;  and  such  public  serv- 
ices have  always  been  subject  to  a  special  law 
compelling  their  proprietors  to  deal  fairly  with 
their  public. 

The  mediaeval  system  involved  almost  uni- 
versal regulation  of  all  the  doings  of  men, 
and  therefore  its  commercial  policy  was  almost 
completely  restrictive.  The  ideal  held  was  a 
society  in  which  all  things  were  ordered,  the 
full  conception  being  that  every  man  had  a 
right  to  his  place  in  this  established  order. 
This  state  of  affairs  was  by  most  men  greatly 
desired.  Indeed,  a  regulated  monopoly  with 
the  corresponding  obligation  of  public  service 


PUBLIC  BUSINESSES  169 

seemed  in  that  age,  to  the  great  majority  of 
people,  far  better  than  an  unregulated  com- 
petition without  public  obligation.  It  was 
thought  that  things  were  put  in  a  true  bal- 
ance by  requiring  each  person  to  perform 
his  part,  and  allowing  no  person  to  interfere 
with  the  employment  of  another.  And  all 
of  this  control  of  industrial  affairs  was  felt 
to  be  ultimately  for  the  benefit  of  the  whole 
public,  who  could  obtain  thereby,  without 
favor,  at  reasonable  prices  proper  service  in 
accordance  with  their  requirements.  Thus 
the  baker  and  the  miller  were  by  the  mediseval 
law  bound  to  serve  all  that  applied,  or  else 
they  were  answerable  for  it  in  the  courts. 
Likewise  the  surgeon  and  the  smith  were 
bound  to  serve  all  with  due  diligence;  and  so 
were  the  barber  and  the  tailor.  Innkeepers, 
carriers,  ferrymen,  and  wharfingers  were  held 
to  be  at  the  service  of  the  public  then  as  now. 

The  common  law  persists  from  age  to  age, 
and  though  the  instance  of  its  rules  may  be 
seen  to  change  as  old  conditions  pass  away 
and  new  conditions  arise,  its  fundamental 
principles  remain.  The  early  cases  which  have 
just  been  cited  are  illustrations  of  this  course 
of  events.  Barber,  surgeon,  smith,  and  tailor 
are  no  longer  in  common  calling  because  the 


170    THE  CONTROL  OF  THE  MARKET 

situation  in  the  modern  times  does  not  require 
it;  but  innkeeper,  carrier,  ferryman,  and 
wharfinger  are  still  in  that  classification  since 
even  in  modern  business  the  conditions  require 
them  to  be  so  treated.  With  changed  eco- 
nomic conditions  in  modern  times,  new  call- 
ings have  come  into  being  with  such  poten- 
tialities that  this  special  law  has  been  utilized 
as  never  before  in  regulating  them.  Indeed, 
from  the  point  of  view  of  one  who  believes  in 
our  common  law,  the  class  of  public  callings 
is  capable  of  indefinite  extension  whenever 
new  conditions  bring  new  employments  within 
its  scope.  In  all  times  our  law  has  held  to  the 
principle  that  this  peculiar  regulation  was 
necessary  in  certain  kinds  of  business.  And 
it  depends  largely  upon  the  opinion  current 
at  the  time  how  far  this  law  shall  be 
extended. 

The  principle  of  law  which  permits  the 
regulation  of  these  callings  has  never  been 
abandoned,  though  the  conditions  calling  for 
its  application  at  various  times  have  greatly 
changed.  Whenever  the  public  is  subjected 
to  a  monopoly,  the  power  of  oppression  in- 
herent in  a  monopoly  is  restricted  by  law. 
Whenever,  on  the  other  hand,  competition 
becomes  free,  both  in  law  and  in  fact,  the 


PUBLIC  BUSINESSES  171 

need  of  governmental  regulation  ceases ;  public 
opinion  ceases  to  demand  such  regulation, 
and  the  law  withdraws  it.  At  the  beginning 
of  the  nineteenth  century  was  the  extreme 
swing  of  the  pendulum.  In  this  fortunate 
time,  when  in  most  businesses  the  field  seemed 
free  to  all,  the  belief  was  that  the  ordinary 
processes  of  competition  would  produce  with 
sufficient  certainty  adequate  service  at  fair 
prices.  But  an  absolutely  free  competition 
is  practically  an  impossible  economic  condi- 
tion; and  to  this  men  later  awoke  when,  with 
the  growth  in  the  power  of  the  proprietors  of 
the  industries,  the  people  still  demanded  pro- 
tection from  the  State  in  many  ways. 

As  the  prevalence  of  competitive  conditions 
in  business  limits  the  application  of  the  prin- 
ciples of  public  service  law,  so  the  prevalence 
of  monopolistic  conditions  extends  their  ap- 
plication. Such  a  change  came  about  in 
the  latter  part  of  the  nineteenth  century. 
About  a  generation  ago  a  change  in  com- 
mercial practice  showed  with  remarkable  dis- 
tinctness the  advantage  of  combination. 
Great  enterprises  took  the  place  of  small 
ones,  and  great  enterprises  required  co- 
operation and  combination.  As  the  people 
became  accustomed  to  look  upon  combination 


172    THE  CONTROL  OF  THE  MARKET 

as  the  price  of  success,  they  came  more  and 
more  to  regard  it  as  a  blessing  rather  than 
an  evil;  and  public  opinion  has  gradually 
turned  away  from  the  individualistic  ideal 
until  to-day  it  has  been  fairly  discarded  by 
the  current  philosophy.  With  the  principle 
of  combination  as  the  spring  of  action  has 
come  a  corresponding  need  of  controlling  the 
action  of  such  combinations  for  the  good  of 
the  whole  public.  As  the  rights  of  the  in- 
dividual trader  yield  to  the  rights  of  the 
great  corporation,  so  in  the  view  of  the  man 
of  the  present  day,  the  rights  of  the  cor- 
poration should  in  their  turn  yield  to  the 
rights  of  the  whole  people. 


Ill 

The  case  for  State  control  is  plainest  in  those 
few  utilities  where  there  are  natural  limita- 
tions upon  the  sources  of  supply  which  are 
essential  to  the  business.  This  situation  in 
itself  gives  some  degree  of  monopoly  to  those 
who  control  the  sources  of  supply  most 
accessible  to  their  market,  in  that  it  prevents 
effective  competition  with  the  local  service. 
Thus  those  who  control  the  most  advan- 
tageous waterpower  have  a  natural  monopoly ; 


PUBLIC  BUSINESSES  173 

and  so  it  seems  that  they  must  deal  fairly 
with  all  to  the  extent  of  their  undertaking. 
For  the  same  reason  those  who  have  pre- 
empted the  natural  gas  fields  must  deal  with- 
out discrimination  with  the  public  which  they 
have  assumed  to  serve  therefrom.  It  would 
be  going  too  far  doubtless,  at  the  present 
time,  to  claim  that  it  is  accepted  law  that 
natural  limitation  of  a  public  necessity  neces- 
sarily makes  its  general  sale  public  employ- 
ment. So  long  as  those  who  have  virtual 
monopoly  of  the  anthracite  coal  fields  are 
left  free  to  charge  what  prices  they  please, 
the  principle  is  in  abeyance.  And  so  long 
as  those  who  have  virtual  control  of  the 
petroleum  oil  wells  are  left  free  to  discrimi- 
nate as  they  please  between  their  customers, 
the  duty  is  not  recognized.  But  it  may  be 
that  in  the  fullness  of  time  these  now  all  too 
powerful  purveyors  to  public  needs  will  be 
brought  within  this  law,  and  subjected  to 
public  regulation. 

One  of  the  earliest  needs  of  a  community 
is  a  supply  of  water  for  domestic  uses;  and 
it  has  been  always  obvious  that  this  is  a 
public  utility  in  a  true  sense  of  that  term. 
Said  Mr.  Justice  Lord,  in  an  important  Ore- 
gon case  (21  Ore.  211) :  "  How  can  the  de- 


174    THE  CONTROL  OF  THE  MARKET 

fendant,  upon  the  tender  of  the  proper  com- 
pensation, refuse  to  supply  water  without 
distinction  to  one  and  all  whose  property 
abuts  upon  the  street  in  which  its  pipes  are 
laid?  If  the  supplying  of  a  city  or  town 
with  water  is  not  a  public  purpose,  it  is 
difficult  to  conceive  of  any  enterprise  in- 
trusted to  a  private  corporation  that  could 
be  classed  under  that  head." 

An  equally  plain  public  service  is  the 
irrigation  system,  so  obvious  indeed  that  the 
propriety  of  State  aid  to  such  an  undertaldng 
has  never  been  doubted.  In  Cummings  v. 
Hyatt  (54  Neb.  35).  Chief  Justice  Harri- 
son held  a  taking  for  irrigation  to  be  a  pub- 
lic use:  "  It  must  be  concluded  that  it  has 
been  established  by  both  legislative  and 
judicial  determination  that  the  use,  in  con- 
templation of  law  and  designated  thereby, 
was  a  public  one,  and  with  the  further  con- 
siderations that  all  members  of  the  public 
within  the  range  of  the  operations  of  the 
work  might  demand  and  command  service 
by  the  company  by  payment  of  the  usual  and 
customary  rates  for  such  service,  and  that 
the  company  was  of  such  a  nature  as  would 
subject  it  in  its  transactions  to  legislative 
control, — ^it  was  not  improperly  classed  as  an 


PUBLIC  BUSINESSES  176 

internal   improvement    and   entitled   to    the 
rights  and  privileges  of  such  a  work." 


rv 

Another  natural  limitation  results  from 
the  character  of  the  product.  If  the  physical 
characteristics  of  the  product  are  such  that 
it  can  only  have  a  local  distribution,  the 
barrier  against  outside  competition  may 
fairly  be  said  to  be  natural.  What,  after 
all,  is  that  element  in  the  situation  which 
makes  the  sale  of  gas  a  public  employment, 
while  the  vending  of  candles  is  a  private 
business?  Is  it  not  this — that  the  box  of 
candles  may  be  sent  from  any  factory  into 
any  market,  a  condition  which  preserves  vir- 
tual competition  in  every  market,  while  a 
thousand  cubic  feet  of  gas  can  only  be  got 
from  the  pipes  of  the  local  company,  which 
gives  it  control  of  the  situation?  The  sit- 
uation is  substantially  the  same  as  to  the 
distribution  of  electricity  as  compared  with 
the  sale  of  coal.  Electricity  can  practically 
only  be  supplied  from  the  local  wires,  even 
though  transmission  over  considerable  dis- 
tances is  now  practicable.  It  cannot  be 
transported    independently    and    stored    for 


176    THE  CONTROL  OF  THE  MARKET 

long  periods  as  coal  may  be.  A^Tien  the 
market  is  thus  limited  by  the  nature  of  the 
product,  it  may  fairly  be  said  that  the  mo- 
nopoly of  the  local  company  is  natural. 

It  is  interesting  to  note  that  in  the  first 
cases  which  arose  as  to  the  supply  of  gas, 
the  courts  held  that  the  proprietors  of  a 
gas  works  were  as  free  as  the  owners  of  any 
factory  to  sell  gas  to  some  and  refuse  to 
supply  others.  But  it  was  soon  seen  that 
the  business  was  one  which  could  not  be  left 
without  control.  It  is  universal  law  now  that 
a  gas  company  must  serve  all  who  apply. 
One  of  the  earlier  instances  of  this  rule  in 
the  United  States  is  to  be  found  in  Shepard 
v.  Milwaukee  Gas  Light  Company  (6  Wis. 
539).  The  plaintiff  complained  of  the  re- 
fusal by  the  established  gas  works  to  supply 
him.  The  defendant  claimed  that  under  the 
circumstances  of  the  case  it  was  not  bound 
to  serve  the  plaintiff.  JMr.  Justice  Smith 
held  that  the  gas  company  was  bound  to 
sell  its  gas  to  every  citizen  of  Milwaukee 
upon  compliance  with  such  regulations  only 
as  the  company  might  rightfully  impose. 
His  argument  was  this:  "  It  is  sufficient  for 
the  purposes  of  this  case  to  know  that  the 
company  had   the   exclusive   right   to  manu- 


PUBLIC  BUSINESSES  177 

facture  and  sell  gas,  and  that  hence  the  only 
means  of  supply  available  to  citizens  was 
through  the  agency  of  the  company.  Cor- 
porations of  this  kind  are  not  like  trading 
or  manufacturing  corporations  whose  produc- 
tions may  be  transported  from  market  to 
market  throughout  the  world.  Its  manu- 
facture depends  upon  the  consumption  of 
the  immediate  neighborhood  for  its  profit 
and  success,  and  upon  no  other  place.  From 
the  nature  of  the  article,  the  objects  of  the 
company,  their  relations  to  the  community, 
and  from  all  the  considerations  before  men- 
tioned, it  is  to  me  apparent  that  the  com- 
pany is  not  at  all  analogous  to  an  ordinary 
manufacturing   or   trading   corporation." 

It  is  most. significant  that  no  electric  light 
company  has  ever  squarely  denied  that  there 
rested  upon  it  the  primary  obligation  to  serve 
all.  It  shows  that  the  law  of  public  service 
has  now  such  general  acceptation  that  in 
a  new  instance  where  it  is  obvious  it  will 
be  applied  by  the  courts  without  hesitation. 
In  holding  for  the  consumer  in  an  Illinois 
case  (196  111.  626),  Mr.  Justice  Carter  thus 
stated  the  fundamental  propositions  involved: 
"  There  is  no  statute  regulating  the  manner 
under   which   electric   light    companies    shall 


178    THE  CONTROL  OF  THE  MARKET 

do  business  in  this  state.  They  are  therefore 
subject  only  to  the  common  law,  and  such 
regulations  as  may  be  imposed  by  the  mu- 
nicipality which  grants  them  privileges.  Ap- 
pellee, being  organized  to  do  a  business  af- 
fected with  a  public  interest,  must  treat  all 
customers  fairly  and  without  unjust  discrimi- 
nation. Both  reason  and  authority  deny  to 
a  corporation  clothed  with  such  rights  and 
powers,  and  bearing  such  a  relation  to  the 
public,  the  power  to  arbitrarily  fix  the  price 
at  which  it  will  furnish  light  to  those  who 
desire  to  use  it." 


Another  obvious  restriction  upon  effective 
competition  results  from  limitation  of  time. 
When  the  need  of  the  applicant  is  immediate, 
the  person  from  whom  he  asks  service  has  the 
upper  hand.  This  monopoly  may  only  be 
temporary;  but  it  is  none  the  less  real.  This 
insistent  need  for  present  service  largely  ex- 
plains why  the  innkeeper  dealing  with  the 
wayfarer,  and  the  hackman  bargaining  with 
the  traveler,  have  always  been  held  subject 
to  special  law  governing  their  deahngs. 
The  weary  wayfarer  would  pay  an  exorbitant 
price  rather  than  be  turned  back  into   the 


PUBLIC  BUSINESSES  179 

night,  even  although  another  inn  were 
nearby;  and  it  is  notorious  that  a  hackman 
can  extort  an  outrageous  fare  from  a  passen- 
ger in  haste,  although  another  hackman  may 
be  around  the  corner.  It  is  the  instant  need 
also  which  gives  to  those  agencies  established 
for  the  rapid  transmission  of  intelligence 
that  virtual  monopoly  which  the  telegraph 
and  telephone  obviously  have.  There  are 
other  ways  of  sending  communications  by 
mail  or  by  messenger,  but  they  are  not 
effective  substitutes. 

In  the  case  of  the  telephone  it  is  shown 
plainly  that  there  is  a  common  law  principle 
applicable  to  all  businesses  which  are  monopo- 
listic in  character.  From  the  first  the  courts 
held  the  business  subject  to  the  public  serv- 
ice law.  Said  a  Nebraska  judge  in  a  leading 
case  (17  Neb.  126) :  "  While  there  is  no  law 
giving  it  a  monopoly  of  the  business  in  the 
territory  covered  by  its  wires,  yet  it  must 
be  apparent  to  all  that  the  mere  fact  of  this 
territory  being  covered  by  the  plant  of  the 
respondent,  from  the  very  nature  and  char- 
acter of  the  business,  gives  it  a  monopoly  of 
the  business  which  it  transacts.  No  two 
companies  will  try  to  cover  this  same  terri- 
tory.   The  demands  of  the  commerce  of  the 


180    THE  CONTROL  OF  THE  MARKET 

present  day  make  the  telephone  a  necessity. 
All  the  people,  upon  complying  with  the 
reasonable  rules  and  demands  of  the  owners 
of  the  commodity, — patented  as  it  is, — should 
have  the  benefit  of  this  new  commerce.  The 
wires  of  the  respondent  pass  the  office  of  the 
relator.  The  relator  never  can  be  supplied 
with  this  new  element  of  commerce,  so  neces- 
sary in  the  prosecution  of  all  kinds  of  busi- 
ness, unless  supplied  by  the  respondent." 

A  fundamental  case  that  comes  to  mind 
at  this  point  is  the  Illinois  case  (184  111.  438) 
putting  the  Associated  Press  in  public  em- 
ployment, where  Mr.  Justice  Phillips  said: 
"  The  Associated  Press,  from  the  time  of  its 
organization  and  establishment  in  business, 
sold  its  news  reports  to  various  newspapers 
who  became  members,  and  the  publication 
of  that  news  became  of  vast  importance  to 
the  public,  so  that  public  interest  is  at- 
tached to  the  dissemination  of  that  news. 
The  manner  in  which  that  corporation  has 
used  its  franchise  has  charged  its  business 
with  a  public  interest.  It  has  devoted  its 
property  to  a  public  use,  and  has,  in  effect, 
granted  to  the  public  such  an  interest  in  its 
use  that  it  must  submit  to  be  controlled  by 
the  public  for  the  common  good,  to  the  extent 


PUBLIC  BUSINESSES  181 

of  the   interest   it   has   thus   created   in   the 
pubhc  in  its  private  property." 


VI 

The  sites  upon  which  certain  services  can 
be  conducted  to  best  advantage  are  few  in 
number.  The  necessity  of  these  locations 
to  proper  conduct  of  the  business  may  be 
so  great  that  those  who  are  possessed  of  these 
sites  may  well  be  said  to  enjoy  a  natural 
monopoly,  since  if  others  venture  to  establish 
themselves  at  all  at  such  disadvantage,  their 
competition  will  be  comparatively  ineffectual. 
At  all  events  those  in  the  favorable  locations 
could  exact  higher  prices  than  would  be 
fair,  were  it  not  for  the  fact  that  the  law 
intervened.  Of  course  the  importance  of 
the  site  depends  upon  the  character  of  the 
business.  Terminal  facilities  operated  in 
connection  with  railway  systems  furnish  the 
most  striking  examples  of  this  importance  of 
particular  sites.  To  a  lesser  extent  this  is 
true  of  those  services  which  although  not 
dependent  upon  an  exact  location  are  oper- 
ated with  peculiar  advantage  in  particular 
areas,  such  as  warehouses  in  business  dis- 
tricts and  cold  storage  in  market-places. 


182    THE  CONTROL  OF  THE  MARKET 

The  grain  elevator  furnishes  the  principal 
case  upon  the  subject  of  the  legal  regulation 
of  established  monopoly.  Any  discussion  of 
the  foundations  of  our  industrial  relations 
must  give  chief  place  to  the  case  of  Munn  v. 
Illinois  (94  U.  S.  113).  Upon  the  right  un- 
derstanding of  this  case  depends  the  true 
conception  of  our  general  theory  of  the 
function  of  State  regulation.  It  was  in  that 
case  that  Mr.  Justice  Waite  announced  the 
doctrine  of  State  control  over  public  busi- 
nesses in  language  which  has  been  quoted 
so  often  as  to  be  familiar  to  all:  "  This  brings 
us  to  inquire  as  to  the  principles  upon  which 
this  power  of  regulation  rests,  in  order  that 
we  may  determine  what  is  within  and  what 
without  its  operative  effect.  Looking,  then, 
to  the  common  law,  from  whence  came  the 
right  which  the  constitution  protects,  we  find 
that  when  private  property  is  '  affected  with 
a  public  interest,  it  ceases  to  be  juris  privati 
only.'  Property  does  become  clothed  with 
a  public  interest  when  used  in  a  manner  to 
make  it  of  public  consequence,  and  affect  the 
community  at  large.  When,  therefore,  one 
devotes  his  property  to  a  use  in  which  the 
public  has  an  interest,  he,  in  effect,  grants 
to  the  public  an  interest  in  that  use,   and 


PUBLIC  BUSINESSES  183 

must  submit  to  be  controlled  by  the  public 
for  the  common  good  to  the  extent  of  the 
interest  he  has  thus  created." 

Any  business  which  must  be  conducted 
within  a  certain  location  is  thus  public  in 
character  by  reason  of  this  limitation.  In 
the  case  of  the  stockyards,  for  example,  its 
monopoly  is  largely  due  to  position,  as  Chief 
Justice  Johnson  pointed  out  in  a  Kansas 
case  (74  Kans.  1)  :  "  Because  of  the  nature 
of  the  business  and  the  railroad  facilities,  the 
establishment  of  other  markets  at  or  near 
Wichita  is  impracticable,  and  hence  these 
stockyards  are,  and  of  necessity  will  be,  the 
only  available  place  where  the  breeders, 
feeders,  and  dealers  of  a  great  scope  of 
country  can  conveniently  market  their  live 
stock.  The  company  has,  therefore,  a  prac- 
tical monopoly  of  a  vast  business  affecting 
thousands  of  people  who  are  almost  obliged 
to  deal  at  that  market  and  at  the  rates  which 
the  company  may  choose  to  charge." 


vn 

Whether  the  monopolistic  conditions  found 
in  a  given  business  are  permanent  or  tem- 
porary, is  the  essential  question.    Where  the 


184.    THE  CONTROL  OF  THE  MARKET 

monopoly  is  natural,  it  is  a  case  for  regula- 
tion by  law.  Where  the  monopoly  is  tem- 
porary, its  destruction  should  be  hastened 
by  the  law.  If  this  programme  is  to  be 
adopted  the  lawyers  must  be  trained  to  dis- 
tinguish between  conditions  establishing  that 
permanent  condition  of  monopoly,  which 
makes  State  control  the  better  course,  and 
the  adventitious  corner,  where  condign  pun- 
ishment of  the  members  of  the  pool  is  called 
for.  Other  circumstances  than  natural  limi- 
tation in  its  strictest  sense  inevitably  produce 
monopoly.  Economic  forces  of  various  sorts 
may,  either  singly  or  in  combination  with 
others,  naturally  result  in  monopoly.  Such, 
for  instance,  would  be  the  case  in  a  business 
where  production  upon  a  large  scale  progress- 
ively decreased  cost.  In  such  a  business  it 
is  inevitable  that  the  business  will  be  concen- 
trated in  the  hands  of  a  few  concerns.  Such 
seems  to  be  the  case  in  a  high  ratio  in  the 
petroleum  business  and  in  gas  supply. 

Another  usual  characteristic  of  a  virtual 
monopoly  is  the  relatively  large  cost  of  the 
plant.  In  very  many  instances  this  runs 
high  into  millions  which  must  be  invested 
before  the  service  can  be  begun.  This  neces- 
sity of  getting  together  so  much  capital  limits 


PUBLIC  BUSINESSES  186 

fundamentally  the  amount  of  such  construc- 
tion. Canals  and  railroads  furnish  the  chief 
examples  of  this.  It  would  take  perhaps 
twenty  bilUon  dollars  to  duplicate  the  present 
facilities  for  transportation;  and  it  is,  there- 
fore, practically  inconceivable  that  it  will 
be  done.  Moreover,  in  most  monopolies  there 
is  still  another  reason  why  capital  is  kept 
from  investment  in  a  competing  service. 
The  capital  invested  must  be  sunk  at  the 
risk  of  failure  in  this  one  market.  For  ex- 
ample, an  investment  made  in  a  foundry  or 
an  electric  plant  cannot  be  changed.  Thus 
to  the  enormous  cost  as  a  deterrent  to  com- 
petition is  added  the  imminent  risk  of  total 
loss  in  a  desperate  competition  in  which  one 
competitor  must  perish. 

Still  another  characteristic  of  virtual  mo- 
nopoly is  that  the  applicant  who  wishes  an 
individual  service  of  the  kind  rendered  by 
the  established  company  is  almost  always  at 
great  disadvantage  relatively  in  suppljring 
himself.  It  is,  of  course,  rare  that  the  pos- 
sibilities in  any  given  case  will  be  so  re- 
stricted that  if  the  applicant  is  refused  service 
by  the  particular  company  no  alternative  is 
open  to  him;  usually,  in  some  way  or  other, 
he  could  hit  upon  some  way  out  in  such  a 


186    THE  CONTROL  OF  THE  MARKET 

case.  But  the  alternative  offered  will  often 
be  an  inadequate  substitute,  disadvantageous 
to  a  greater  or  lesser  degree.  In  such  a  sit- 
uation there  is  no  effectual  competition  to 
regulate  the  action  of  the  original  company, 
and  without  the  interposition  of  the  law 
there  might  be  great  oppression.  A  farmer, 
charged  an  exorbitant  price  for  a  harvester, 
may  keep  to  his  scythe,  but  only  at  great 
disadvantage.  The  mere  fact  that  there  are 
two  gas  companies  in  a  town  is  not  enough 
to  alter  the  fact  that  the  situation  is  essen- 
tially monopolistic,  for  if  one  may  refuse 
service,  the  other  may  also. 

The  common  fact  in  all  the  instances  of 
public  employment  which  have  been  dis- 
cussed is  virtual  monopoly.  It  matters  not 
by  what  conditions  this  situation  is  estab- 
lished. The  conditions  which  may  produce 
virtual  monopoly  are  various;  and  some  of 
them  will  suffice  alone.  The  effect  of  various 
natural  limitations,  such  as  available  sources 
of  supply,  restricted  opportunities  of  access, 
limited  time  at  disposal,  and  difficulties  in 
distribution  have  just  been  discussed.  But 
of  almost  equal  importance  are  other  factors 
producing  true  economic  monopoly  by  de- 
terring   effectual    competition,    such    as    the 


PUBLIC  BUSINESSES  187 

cost  of  the  plant,  the  large  scale  upon  which 
the  business  is  done,  the  absence  of  effectual 
substitutes,  and  the  dependent  position  of 
the  particular  service.  With  all  the  factors 
which  may  produce  virtual  monopoly  in  mind 
it  will  be  evident  enough  that  in  this  general 
situation,  however  established,  there  is  real 
danger  to  society  calling  for  regulation  by 
the  State. 

VIII 

A  review  of  all  of  the  instances  of  public 
employment  which  have  thus  far  been  cited 
in  the  course  of  this  whole  discussion  will 
show  that  this  conception  of  virtual  monopoly 
will  cover  everything.  Nothing  narrower  will 
do,  as  for  example  the  difference  sometimes 
put  forward  between  the  undertaking  of  a 
public  service  in  contradistinction  to  the  fur- 
nishing of  a  public  supply.  Now,  it  is  true 
that  most  of  the  cases  are  cases  of  service — 
the  railway  and  the  warehouse,  for  example; 
but  other  of  the  cases  are  of  supply, — ^the 
waterworks  and  gas  works,  for  instance. 
Indeed,  there  is  nothing  in  this  distinction, 
either  in  economics  or  in  law.  It  is  sub- 
mitted that  any  business  is  made  out  to  be 
public  in  character  where  there  is  a  virtual 


188    THE  CONTROL  OF  THE  MARKET 

monopoly  inherent  in  the  nature  of  things. 
If  virtual  monopoly  is  made  out  as  the 
permanent  condition  of  affairs  in  a  given 
business,  then  the  law,  it  seems,  will  consider 
that  calling  public  in  its  nature.  On  the 
other  hand,  if  effective  competition  is  proved 
as  the  regular  course  of  things  in  a  given  in- 
dustry, the  law  will  hold  all  businesses  within 
it  as  private  in  their  character.  Under  our 
constitutional  system  a  distinction  is  made 
upon  this  line.  In  the  public  calling,  regu- 
lation of  service,  facilities,  prices  and  dis- 
criminations is  possible  to  any  extent. 
Monopolistic  conditions  demand  such  policy; 
and  at  no  period  in  history  has  this  been 
more  apparent  than  now.  In  the  private 
callings  no  such  legislation  should  be  per- 
mitted. Where  competitive  conditions  pre- 
vail there  should  be  freedom;  and  at  no  epoch 
in  our  industries  has  it  been  more  important 
to  insist  upon  this.  But  wherever  there  is 
established  monopoly  in  a  business  of  public 
importance  at  any  time  and  from  any  cause, 
the  law  is  requisite  that  all  shall  be  served 
on  a  reasonable  basis. 


NOTE 

A  FEW  of  the  now  numerous  cases  are  subjoined  where 
public  employment  has  been  found  after  elaborate  dis- 
cussion of  the  situation:  Waterworks — Haugen  v.  Al- 
bina  Water  Co.,  21  Ore.  411  (1891);  Irrigation  System — 
Slosser  v.  Salt  River  Canal  Co.,  7  Ariz.  376  (1901); 
Natural  Gas — State  v.  Consumers  Gas  Co.,  157  Ind.  345 
(1901);  Waterpowers — Sammons  v.  Keirney  Power  Co., 
77  Neb.  580  (1906);  Stockyards^Wichitei  Stockyards 
Co.  V.  Ratcliff,  74  Kas.  1  (1906);  Gas  ^orik*— Opinion 
of  the  Justices,  150  Mass.  592  (1890)  ;  Electric  Plants — 
Snell  V.  Clinton  Electric  Co.,  196  111.  626  (1902); 
Electric  Power — Jones  v.  No.  Georgia  Electric  Co.,  125 
Ga.  618;  Telegraph — Green  v.  Telegraph  Co.,  136  N.  C. 
489  (1904);  Telephone — State  v.  Nebraska  Telephone 
Co.,  17  Neb.  126  (1885);  BaiZroad*— Raleigh  R.  R.  o. 
Davis,  2  Dev.  &  Bat.  451  (1837);  Pipe  Lines— West 
Virginia  Co.  v.  Volcanic  Co.,  5  W.  Va.  382  (1872); 
Saw  Mills— State  v.  Edwards,  86  Me.  102  (1893); 
Grist  Mills— Gajlord  v.  District,  204  111.  576  (1903); 
Docks — Barrington  v.  Commercial  Dock  Co.,  15  Wash. 
170;  Grain  Elevator — Munn  v.  Illinois,  94  U.  S.  113. 

In  the  following  cases  among  others,  the  business  in 
question  was  held  private:  Skating  Rink — Tombler 
V.  Koelling,  60  Ark.  62  (1894);  T^eafer*— Percell  v. 
Daley,  19  Abb.  N.  C.  301  (1886);  Foundry— Loan 
Ass'n.  V.  Topeka,  20  Wal.  655  (1874);  MiZZ— Allen  v. 
Jay,  60  Me.  124  (1872);  Coal  Fard— Opinion  of  the 
Justices,  182  Mass.  605  (1882);  Apartment  House — 
Davis  V.  Gay^  141  Mass.  531  (1886). 


189 


CHAPTER  IX 

UNFAIR  PRACTICES  IN  PUBLIC   CALLINGS 


Although  from  the  earliest  times  some 
restraint  has  been  exercised  over  such  lines 
of  activity  as  are  of  vital  interest  to  the 
public,  in  recent  times  there  undoubtedly  is 
an  increasing  need  of  stricter  regulation  of 
those  important  employments  which  are 
affected  with  a  public  interest.  Indeed,  in 
the  case  of  the  public  services,  their  power 
over  all  commercial  activities  has  become  so 
apparent  that  the  necessity  for  the  control 
of  that  power  for  the  protection  of  the  whole 
people  is  generally  conceded.  Undoubtedly 
it  is  now  thoroughly  understood  by  all  who 
conduct  businesses  which  are  affected  with 
a  public  interest,  that  they  must  not  un- 
justifiably refuse  applications  for  service, 
willfully  neglect  to  provide  adequate  facilities, 
unreasonably  demand  unusual  prices,  or 
capriciously  discriminate  between  their  pa- 
trons.     Nevertheless    it    is    occasionally    as- 

190 


UNFAIRNESS  IN  PUBLIC  CALLINGS    191 

serted  by  the  managers  of  a  public  employ- 
ment that  they  may  refuse  to  give  service 
when  it  becomes  necessary  to  protect  their 
business  interests;  and  more  frequently  the 
right  is  claimed  to  make  differences  in  their 
prices  in  order  to  promote  their  business  in- 
terests. 

n 

To  meet  the  exigencies  of  the  trust  situation 
at  present,  positive  law  is  required.  Abusing 
the  freedom  which  those  in  private  business 
enjoy,  those  who  have  had  control  of  the 
industrial  trusts  have  adopted  various  poli- 
cies to  force  other  competitors  out  of  busi- 
ness, which  would  never  have  been  allowed 
had  the  law  of  public  business  been  applied 
to  the  situation.  One  of  the  most  repre- 
hensible methods  of  building  up  monopoly 
has  been  by  adopting  an  exclusive  policy, 
refusing  to  sell  to  dealers  who  handled  the 
goods  of  their  competitors.  This  almost  in- 
evitably forces  a  smaller  competitor  to  the 
wall.  It  is  true  that  such  competition  is  not 
held  unfair  where  individuals  only  are  con- 
cerned. But  concerted  action  of  this  sort, 
as  has  been  seen,  is  generally  considered  to 
be  an  actionable  conspiracy.     In  open  com- 


192    THE  CONTROL  OF  THE  MARKET 

petition  this  business  policy  may  be  per- 
mitted; but  when  monopoly  is  present,  it 
becomes  too  oppressive  to  be  borne.  From 
a  business  standpoint  it  may  be  an  effective 
policy  at  times  to  refuse  to  have  any  deal- 
ings with  a  customer  who  persists  in  patron- 
izing a  rival.  The  employment  of  such 
policies  is  forbidden  those  who  conduct  pub- 
lic services  largely  because  in  public  busi- 
nesses virtual  monopoly  is  usually  present. 

In  any  case  of  public  employment,  how- 
ever, it  is  really  impossible  to  justify  in  any 
way  the  outright  refusal  to  serve  an  appli- 
cant, who  wishes  service,  on  the  ground  that 
he  is  dealing  with  a  rival.  One  example 
of  this  is  Chicago  &  Alton  Railroad  v. 
Suffern  (129  111.  274),  where  the  court 
held  that  a  railroad  could  not  refuse  to 
receive  coal  from  a  shipper  who  had  begun 
to  make  shipments  by  another  route,  basing 
its  decision  upon  the  ground  that  serious  in- 
jury would  result  to  the  business  interests  of 
the  people  if  shippers  could  be  compelled 
by  such  arbitrary  measures  to  patronize  one 
railroad  to  the  exclusion  of  others.  As  the 
court  said,  since  fair  competition  between 
roads  is  for  the  public  interest,  if  a  road  could 
do  so  it  could  establish  the  most  odious  sort 


UNFAIRNESS  IN  PUBLIC  CALLINGS    193 

of  monopoly.  Another  leading  case  is  Ben- 
nett V.  Button  (10  N.  H.  481).  There  one 
stage  line  refused  to  take  passengers  coming 
for  a  part  of  the  way  by  a  rival  line;  but  the 
court  held  this  to  be  a  plain  violation  of 
public  duty. 

ni 

It  has  been  pointed  out  that  the  power  of 
the  trusts  to  crush  efficient  competitors  is 
dependent  to  a  large  extent  upon  various 
kinds  of  discrimination.  It  will  be  profitable 
to  see  how  the  courts  have  dealt  with  this 
sort  of  thing  in  the  case  of  the  public  call- 
ings in  general,  since  the  establishment  of 
any  business  as  public  in  its  nature  depends 
in  the  last  analysis  upon  the  existence  of 
virtual  monopoly.  Indeed,  the  modern  rule 
requiring  service  to  all  who  apply,  without 
discrimination  against  any,  is  founded  upon 
the  absolute  necessity  of  preventing  those 
who  have  control  of  the  market  from  exer- 
cising that  power  to  the  disruption  of  the 
industrial  order. 

The  promptness  with  which  the  courts  act 
in  recent  years  to  prevent  personal  discrimi- 
nation in  the  case  of  an  admitted  public  em- 
ployment is  shown  in  a  decision  like  Menacho 


194    THE  CONTROL  OF  THE  MARKET 

V.  Ward  (27  Fed.  529),  where  Mr.  Justice 
Wallace  said  of  a  discriminating  rate  against 
those  who  shipped  goods  by  another  line: 
"  Its  tendency  is  to  deprive  the  public  of 
their  legitimate  opportunities  to  obtain  car- 
riage upon  the  best  terms  they  can.  If 
it  is  tolerated  it  will  result  practically  in 
giving  the  defendants  a  monopoly  of  the 
carrying  trade  between  these  places.  Mani- 
festly it  is  enforced  by  the  defendants  in 
order  to  discourage  all  others  from  attempt- 
ing to  serve  the  public  as  carriers  between 
those  places.  Such  discrimination  is  not  only 
unreasonable,  but  is  odious." 

There  is  a  telephone  case  in  South  Carolina 
(61  S.  C.  83)  where  one  telephone  com- 
pany made  its  patrons  agree  not  to  use  the 
rival  system.  One  of  its  patrons  violated 
this  agreement;  but  the  court  held  that  his 
service  could  not  be  cut  off.  "  A  telephone 
company,"  said  the  court,  "  would  have  no 
more  right  to  refuse  service  for  this  cause, 
than  a  railway  company  would  have  to  refuse 
to  transport  the  goods  of  a  shipper,  unless 
he  would  agree  to  patronize  its  lines  ex- 
clusively, and  not  to  give  any  of  his  business 
to  any  competing  railway  line."  The  neces- 
sity of  compelling  those  in  public   employ- 


UNFAIRNESS  IN  PUBLIC  CALLINGS    195 

ment  to  serve  without  discrimination  is  thus 
apparent;  it  is  no  less  obvious  in  every  case 
of  virtual  monopoly. 

It  seems  to  be  an  almost  conclusive  argu- 
ment for  treating  as  public-service  companies 
all  great  corporations  that  have  established 
control  of  their  market,  that  by  no  other 
law  than  that  of  public  calling  can  the  sit- 
uation be  met.  In  private  calling  factors' 
agreements  of  this  sort  are  supported,  which 
shows  that  the  present  conditions  in  the  con- 
duct of  these  great  businesses  have  out- 
grown this  law.  In  public  callings  every 
restrictive  condition  is  void;  and  this  points 
to  this  law  as  the  way  out.  In  private  busi- 
ness this  sort  of  competition  is  properly  held 
fair;  in  public  business  it  is  properly  held 
unfair.  It  is  the  modem  desire  to  protect 
the  small  manufacturers  from  such  competi- 
tion by  the  large  manufacturers.  There  can 
be  no  doubt  about  this  to  anyone  at  all  in- 
formed of  present  public  opinion  upon  this 
crucial  question. 


IV 

Another   policy,   which   is   often   of   such 
obvious  advantage  as  to  be  common  in  ordi- 


196    THE  CONTROL  OF  THE  MARKET 

nary  business,  is  to  make  lower  proportionate 
rates  to  larger  than  to  smaller  customers, 
and  even  occasionally  to  decline  to  deal  with 
very  small  customers,  who  may  be  more 
trouble  than  they  are  worth.  The  latter  is  a 
small  matter,  perhaps,  while  the  former  is  a 
matter  of  great  moment  to  the  managers  of 
public  services,  who  may  often  see  the  op- 
portunity to  get  large  amounts  of  valuable 
business,  highly  profitable  in  the  aggregate, 
even  at  lower  proportionate  rates,  if  they  can 
still  maintain  higher  proportionate  rates  upon 
the  regular  business  which  they  get  from 
smaller  customers  who  are  not  in  a  position 
to  dictate  their  terms.  It  should  be  obvious 
that  in  a  public  employment  all  applicants 
must  be  served  at  fair  rates,  even  if  in  a  par- 
ticular case  it  is  especially  bothersome  or  even 
particularly  expensive. 

It  is  common  knowledge  that,  in  the  con- 
ducting of  many  large  public  services,  dis- 
counts have  been  made  to  large  customers  in 
order  to  get  their  trade  and  to  retain  it;  and 
although  this  practice  is  not  often  made  public 
at  the  present  time,  still  it  is  the  policy  some- 
times adopted  and,  when  attacked,  openly 
defended.  That  this  policy  may  be  often 
advantageous  in  public,  as  it  is  in  private 


UNFAIRNESS  IN  PUBLIC  CALLINGS    197 

business,  may  be  admitted.  But  it  has  already 
been  seen  that  public  duties  may  conflict  with 
business  policies;  and  that  such  a  policy  does 
conflict  with  public  business  may  be  argued 
from  its  deplorable  results.  The  undue  favor- 
ing of  large  customers  will  give  them  such 
commercial  advantages  that  they  will  crush 
out  their  smaller  competitors;  and  this  is 
particularly  true  when  a  railroad  company 
adopts  the  policy  of  making  lower  propor- 
tionate rates  to  large  customers  as  such. 

Such  discrimination  is  opposed  to  a  sound 
public  policy.  It  would  build  and  foster 
monopolies,  add  largely  to  the  accumulated 
power  of  capital  and  money,  and  drive  out 
all  enterprise  not  backed  by  overshadowing 
wealth.  This  was  the  line  of  argument  relied 
upon  by  the  court  in  the  leading  case  of  Hays 
V.  Pennsylvania  Railroad  (12  Fed.  309), 
where  the  rather  plausible  scheme  was 
adopted  of  a  sliding  scale  by  which  the 
amount  of  rebate  was  graduated  by  the 
quantity  of  freight  furnished  by  each  ship- 
per, a  scheme  which  the  railroad  urged  was 
adopted  in  good  faith  for  the  purpose  of 
stimulating  production  and  increasing  its 
tonnage.  But  the  court  said  that  if  the  rate 
was  fixed  by  the  business  furnished  the  rail- 


198    THE  CONTROL  OF  THE  MARKET 

way,  "  the  small  operator  must  sooner  or 
later  be  forced  to  abandon  the  unequal  con- 
test and  surrender  to  his  more  opulent 
rival." 

Although  this  case  now  represents  the 
great  weight  of  authority,  it  must  be  admit- 
ted that  there  is  still  a  respectable  minority 
which  holds  that  lower  relative  rates  may  be 
made  to  large  customers  despite  the  injury 
which  small  customers  must  suffer  thereby. 
In  the  case  of  Silkman  v.  Water  Commis- 
sioners (152  N.  Y.  327),  for  example,  it  was 
held  that  lower  water  rates  might  be  given 
to  large  consumers  than  to  small  consumers, 
the  court  saying  that  to  make  such  differ- 
ence was  a  "  business  principle  of  general  ap- 
plication." The  courts  which  take  this  view 
profess  to  limit  their  doctrine  by  the  quali- 
fication that  the  differences  between  the 
rates  for  large  and  small  customers  must 
not  to  be  unreasonable,  but  it  is  difficult  to  see 
any  standard  by  which  that  difference  may 
be  tested  if  it  is  once  permitted;  and  indeed 
it  may  be  asserted  with  confidence  that  it  is 
opposed  to  fundamental  principles  whenever 
the  services  to  large  customers  and  to  small 
customers  are  practically  identical,  as  they 
usually  are. 


UNFAIRNESS  IN  PUBLIC  CALLINGS    199 


In  pursuance  of  the  same  policy  of  in- 
creasing the  total  profits  by  reaching  out 
for  additional  business,  which  may  be  ob- 
tained by  making  concessions  from  the  ordi- 
nary rates  charged  regular  customers,  many 
managers  of  public  services  claim  the  right 
to  make  special  concessions  for  special  kinds 
of  business,  in  which  the  ordinary  prices 
could  not  be  afforded.  The  same  argument 
is  made  here  which  is  made  elsewhere,  that 
handling  this  additional  business  will  nor- 
mally tend  to  the  benefit  of  regular  cus- 
tomers, since  the  additional  business,  if 
rightly  managed  in  their  interest,  will  relieve 
the  regular  business  of  a  share  of  the  fixed 
charges.  This  is  the  argument  the  apologists 
for  the  trusts  make  in  justifying  a  lower 
price  for  export,  which  is  making  the  Ameri- 
can people  so  restive. 

If  public  companies  may  not  refuse  to 
deal  with  persons  who  want  services  for  one 
purpose,  while  they  profess  to  serve  others 
who  want  the  same  services  for  another  pur- 
pose, it  would  seem  to  follow  that,  in  their 
dealings  with  their  patrons  who  ask  the  same 
service,   a  public  company  ought  to  charge 


200    THE  CONTROL  OF  THE  MARKET 

all  alike,  without  regard  to  the  need  they 
have  of  the  service.  It  is  true  that  the  re- 
sults are  not  so  deplorable  when  the  dis- 
crimination is  between  patrons  who  put  the 
service  to  different  usage  as  they  are  when 
the  discrimination  is  between  applicants 
who  are  competitors;  but  it  is  submitted 
that  from  a  logical  point  of  view  there  is 
substantially  the  same  illegality,  and  from  a 
practical  point  of  view  there  is  much  the 
same  injustice.  Nevertheless  it  is  strongly 
urged  by  the  railroad  companies,  for  ex- 
ample, that  they  should  be  allowed  to  make 
different  rates  for  commodities  which  are 
destined  for  different  purposes.  It  is,  again, 
pointed  out  that  this  policy  may  be  necessary 
in  order  to  get  more  traffic,  and  that  this  by 
the  law  of  increasing  returns  may  be  for 
the  benefit  of  all  concerned. 

Moreover,  the  railroad  managers  some- 
times make  here  an  argument,  which  they 
elaborate  in  other  situations,  that  upon 
grounds  of  public  policy  they  should  be  per- 
mitted to  make  such  lower  rates  as  they  did 
in  Hoover  v.  Pennsylvania  Railroad  (156 
Pa.  St.  220),  where  they  exacted  one  rate 
for  coal  to  be  sold  at  retail  for  domestic  con- 
sumption and  a  lower  rate   for  coal  to  be 


UNFAIRNESS  IN  PUBLIC  CALLINGS    201 

used  for  manufacturing  purposes.  And,  in- 
deed, in  that  case  the  court  was  persuaded 
that  there  was  a  public  policy  to  support 
such  concessions  for  special  purposes,  in  view 
of  the  encouragement  given  to  productive 
industries  by  such  preferential  rates.  But 
despite  the  economic  argument,  the  legal 
principle  remains  that  to  charge  different 
customers  who  wish  the  same  service  dif- 
ferent prices,  when  there  is  no  difference  in 
the  conditions  under  which  the  service  is  ren- 
dered, is  plain  inequality,  and  therefore  out- 
right discrimination. 

Singularly  enough,  this  was  the  basis  of 
the  decision  in  another  Pennsylvania  case, 
Bailey  v.  Fayette  Gas-Fuel  Company  (193 
Pa.  St.  175),  which  was  decided  only  a  few 
years  later.  In  that  case  a  higher  price  per 
cubic  foot  was  charged  to  customers  who 
used  gas  simply  for  illuminating  than  was 
charged  to  such  customers  as  used  gas  also 
for  fuel.  This  was  properly  held  to  con- 
stitute unjustifiable  discrimination,  and  so 
sweeping  was  the  language  of  the  court  as  to 
cover  the  less  obvious  case  of  making  different 
prices  for  illuminating  gas  and  fuel  gas. 
But  it  would  seem  that  the  discrimination 
was  unjustifiable,   since  it  was  not  claimed 


202    THE  CONTROL  OF  THE  MARKET 

that  there  is  any  difference  in  the  .cost  of 
the  product  to  the  company,  the  expense  of 
supplying  it  at  the  point  of  delivery,  or  its 
value  to  the  company  in  the  increase  of 
business  or  other  ways. 


VI 

The  law  of  public  calling  is  thus  a  solu- 
tion for  the  worst  wrong  in  the  present  sit- 
uation— discrimination.  It  is  also  the  way 
out  for  the  only  other  element  in  the  situa- 
tion that  is  of  first  importance — extortion. 
In  private  business  one  may  demand  any 
price  one  can  get.  Not  so  in  public  business; 
there  only  a  reasonable  price  can  be  exacted. 
That  there  is  danger  of  unreasonable  prices 
in  the  present  situation  is  quite  evident. 
Control  of  the  market  leads  to  power  to  put 
up  price;  and  power  inevitably  leads  to 
action.  No  law  can  effectively  deal  with 
monopoly  without  the  right  to  restrict  to 
reasonable  prices;  the  law  governing  the 
public  services  has  that  right.  The  elemental 
principles  thus  far  noted  in  the  public  serv- 
ice law  may  be  summarized  as,  on  the  one 
hand,  the  right  of  the  company  to  derive  a 
fair  income,   based  upon  the   fair  value  of 


UNFAIRNESS  IN  PUBLIC  CALLINGS    203 

the  property  at  the  time  it  is  being  used 
for  the  public,  taking  into  account  the  cost 
of  maintenance  or  depreciation,  and  current 
operating  expenses;  and,  on  the  other  hand, 
the  right  of  the  public  to  have  no  more  ex- 
acted than  the  services  in  themselves  are 
worth.  But  the  public  service  law  has  ad- 
vanced beyond  these  generalizations,  until  it 
has  now  become  a  working  code. 

It  will  be  generally  agreed  that  the  law  of 
public  calling  is  dealing  with  much  success 
vdth  this  difficult  problem  of  the  determina- 
tion of  the  reasonable  rate.  The  scientific 
nature  of  the  subject  is  now  beginning  to  be 
apprehended.  Elaborate  rules  are  being 
framed;  for  at  last  the  rights  of  both  sides 
are  appreciated.  On  the  one  hand  the  full 
right  of  the  public  to  restrict  a  public  serv- 
ice company  to  reasonable  charges  is  recog- 
nized; on  the  other  hand  the  corresponding 
right  of  the  public  service  company  to  a  fair 
return  upon  its  capital  is  admitted.  The  case 
of  Brymer  v.  Butler  Water  Company  (179 
Pa.  St.  231)  shows  how  a  late  decision  deals 
with  this  troublesome  conflict  of  interests. 
A  schedule  of  rates  fixed  by  a  water  com- 
pany came  up  for  examination  under  a 
statute  which  gave  the  court  the  power  to 


204    THE  CONTROL  OF  THE  MARKET 

revise  a  water  schedule;  and  the  court  thus 
stated  the  general  principles  upon  which  it 
would  proceed  in  judging  the  rates  the  com- 
pany was  charging:  "  By  what  rule  is  the 
court  to  determine  what  is  reasonable  and 
what  is  oppressive?  Ordinarily  that  is  a 
reasonable  charge  or  system  of  charges  which 
results  in  a  fair  return  upon  the  investment. 
Fixed  charges  and  the  costs  of  maintenance 
and  operation  must  first  be  provided  for,  then 
the  interests  of  the  owners  of  the  property 
are  to  be  considered.  They  are  entitled  to 
a  rate  of  return,  if  their  property  will  earn 
it,  not  less  than  the  legal  rate  of  interest; 
and  a  system  of  charges  that  yields  no  more 
income  than  is  fairly  required  to  maintain  the 
plant,  pay  fixed  charges  and  operating  ex- 
penses, provide  a  suitable  sinking  fund  for 
the  payment  of  debts,  and  pay  a  fair  profit 
to  the  owners  of  the  property,  cannot  be 
said  to  be  unreasonable." 

The  law  of  public  employment  is  certainly 
ready  to  deal  effectively  with  a  most  danger- 
our  phase  of  the  trust  problem.  It  is  com- 
mon knowledge  that  in  most  cases  the  capital- 
ization of  an  industrial  trust  is  many  times 
the  actual  amounts  ever  invested  in  the  enter- 
prises consolidated;  and,  indeed,  the  depre- 


UNFAIRNESS  IN  PUBLIC  CALLINGS     205 

dated  quotations  show  that  they  are  capital- 
ized at  many  times  their  present  value.  This 
sort  of  thing  would  not  confuse  the  Supreme 
Court  of  the  United  States  in  the  determina- 
tion of  the  propriety  of  rates.  Smyth  v. 
Ames  (169  U.  S.  466)  makes  that  point  clear. 
In  that  important  case  Mr.  Justice  Harlan 
said  in  part:  "  If  a  railroad  corporation  has 
bonded  its  property  for  an  amount  that  may 
not  impose  upon  the  public  the  burden  of 
such  increased  rates  as  may  be  required  for 
the  purpose  of  realizing  profits  upon  such 
excessive  valuation  or  fictitious  capitalization; 
and  the  apparent  value  of  the  property  and 
franchises  used  by  the  corporation,  as  rep- 
resented by  its  stocks,  bonds,  and  obliga- 
tions, is  not  alone  to  be  considered  when  de- 
termining the  rates  that  may  be  reasonably 
charged.  We  hold,  however,  that  the  basis 
of  all  calculations  as  to  the  reasonableness 
of  rates  to  be  charged  by  a  corporation  main- 
taining a  highway  under  legislative  sanction 
must  be  the  fair  value  of  the  property  being 
used  by  it  for  the  convenience  of  the  public." 
Plainly  there  is  no  safe  basis  for  the  de- 
termination of  the  rate  except  the  actual 
values.  It  may  be  urged  that  the  result  of 
this  rule  will  be  to  give  to  the  public  the 


206    THE  CONTROL  OF  THE  MARKET 

advantage  of  operation  under  monopolistic 
conditions,  in  particular  the  elimination  of 
the  wastes  of  competition.  The  reply  is  that 
this  is  precisely  the  method  that  should  be 
pursued  in  dealing  with  the  trust  problem. 
If  the  state  permits  monopoly  it  may  demand 
in  return  that  the  monopolist  serve  at  a 
reasonable  price.  This  has  always  been  the 
law  of  public  callings  when  the  statement 
of  it  is  made  with  discrimination.  It  will 
not  do  for  the  United  States  Steel  Corpora- 
tion to  demonstrate  that  its  outstanding 
issues  represent  no  more  than  the  proper 
capitalization  of  its  proved  earning  capacity. 
This  argument  is  too  obviously  circular,  since 
it  very  probably  would  not  have  this  earning 
power,  were  it  not  for  its  virtual  monopoly. 
It  is  not  an  answer  for  the  Standard  Oil 
Company  to  point  to  the  fact  that  upon 
the  whole  it  has  not  advanced  the  price  of 
kerosene  above  the  price  at  which  it  would 
have  been  fixed  from  time  to  time  had  com; 
petitive  conditions  prevailed  during  the  whole 
period.  It  is  still  open  to  the  general  public 
to  point  to  the  forty-eight  per  cent,  dividends 
in  the  last  years,  to  say  that  these  are  the 
proofs  of  the  contention  that,  notwithstand- 
ing, the  price  of  kerosene  has  been  too  high 


UNFAIRNESS  IN  PUBLIC  CALLINGS    207 

during  the  whole  period.  Under  the  public 
service  law,  therefore,  the  State  could  scruti- 
nize the  issue  of  securities  by  the  trusts,  and 
limit  the  size  of  their  dividends. 


vn 

It  should  now  be  apparent  that  the  funda- 
mental question  under  discussion  is  how  far 
public  duty  must  necessarily  deprive  those  who 
conduct  public  employments  from  basing  their 
business  policies  upon  the  elementary  principle 
of  the  law  of  increasing  returns.  That  the  net 
returns  tend  to  increase  with  the  volume  of 
business  in  the  industrial  enterprises  under 
consideration  is  obvious;  and  the  question  is 
whether  a  public  service  is  to  be  permitted 
without  hindrance  to  shape  all  things  so  as 
to  hold  its  present  business,  and  to  add  to  it. 
Some  managers  of  public  services  assert  this 
boldly,  and  a  few  say  frankly,  for  example, 
that  they  base  their  rates  upon  what  the 
traffic  will  bear,  making  high  charges  against 
business  from  which  high  rates  can  be  got, 
conceding  low  rates  in  order  to  get  business 
which  could  not  otherwise  be  obtained.  Of 
course  this  consideration  has  some  place  in 
every  philosophy  of  price-making,  but  it  is 


208    THE  CONTROL  OF  THE  MARKET 

submitted  that  it  is  a  dangerous  principle, 
which  may  often  operate  to  the  disadvantage 
of  the  public  where  the  public  interest  is 
involved. 

The  real  truth  of  the  matter  seems  to  be 
that,  while  in  private  business  nothing  need 
be  considered  except  the  law  of  decreasing 
cost,  in  public  business  there  is  the  law 
against  discrimination  to  be  reckoned  with. 
As  the  court  said  in  the  case  of  Tift  v. 
Southern  Railway  (138  Fed.  753)  it  is  no 
excuse  for  raising  the  rate  upon  a  particular 
article,  as  lumber,  that  it  will  bear  the 
advance;  the  question  is  rather  what  price 
it  is  fair  lumber  should  pay  in  comparison 
with  other  commodities.  It  must  be  ad- 
mitted, however,  that  the  view  of  many 
economists,  that  it  will  be  to  the  advantage 
of  all  concerned  if  railroad  managers  are 
permitted  to  adopt  any  schedule  of  rates 
which  will  produce  the  most  tonnage,  because 
that  policy  will  by  the  law  of  decreasing 
costs  tend  with  an  enlightened  management 
to  the  lowering  of  all  rates,  is  occasionally 
adopted  by  lawyers,  and,  indeed,  has  never 
been  stated  more  strongly  than  recently,  in 
the  case  of  Interstate  Commerce  Commission 
V.    The    Chicago    Great    Western    Railway 


UNFAIRNESS  IN  PUBLIC  CALLINGS    209 

(141  Fed.  1003).  But  if  railway  managers 
are  left  practically  unrestrained  by  law,  it 
is  sufficiently  plain  that  they  will  maintain  a 
high  schedule  of  rates  between  localities 
where  they  have  control  of  the  situation  and 
for  valuable  goods  which  will  bear  high  rates, 
while  at  the  same  time  making  disproportion- 
ate concessions  from  this  standard  to  get  busi- 
ness at  competitive  points  or  to  induce  the 
movement  of  low  grade  commodities. 

The  authorities  upon  these  questions  are 
a  seething  mass,  particularly  in  the  case  of 
railroad  rates.  The  various  commissions 
which  are  near  to  actual  conditions  seem  to 
show  a  tendency  to  condemn  the  fixing  of  the 
differing  rates  between  localities  and  the 
differential  rates  between  commodities  solely 
by  economic  principles  of  demand  and  sup- 
ply, the  unequal  and  unjust  results  of  which 
the  courts  are  apparently  too  far  removed 
from  the  vital  facts  to  realize  or  appreciate. 
But  even  in  the  courts  a  reaction  seems  to 
to  be  at  hand:  in  the  Naval  Stores  case  (118 
Fed.  613)  the  court  seemed  to  be  much 
shocked,  at  least,  by  the  disproportion  be- 
tween the  locality  rates  there  disclosed;  and 
in  the  Window  Shade  case  (64  Fed.  72)  the 
court   considered   the   proportion   to   be   ob- 


210    THE  CONTROL  OF  THE  MARKET 

served  between  the  rate  established  on  raw 
material  and  the  rate  on  the  finished  product. 
It  is  not  enough  to  say  that  this  power  to 
make  preferential  rates  may  be  used  for  the 
benefit  of  a  railway's  territory  as  a  whole 
or  the  industries  of  the  whole  country,  the 
fact  remains  that  it  is  a  power  which  may  be 
abused.  So  long  as  this  power  is  left  in  the 
hands  of  the  managers  of  these  great 
companies  without  power  of  review  by  any 
authority  upon  any  fundamental  principle, 
it  is  in  the  hands  of  the  railroad  officials  to 
build  up  an  artificial  market  where  the  nat- 
ural conditions  are  adverse,  or  to  turn  an 
industrious  city  into  a  wilderness  again;  and, 
without  restrictions  by  law,  it  is  within  their 
power  to  protect  certain  lines  of  industry 
and  to  crush  out  others.  It  is  believed  that 
these  are  too  great  powers  to  intrust  to 
private  hands  without  governmental  control 
based   upon   some   recognized   standards. 

All  that  has  been  said  in  this  section  as 
to  railway  rates  applies  without  much  modi- 
fication to  trust  prices.  It  has  been  a  com- 
mon policy  with  a  national  trust  to  lower 
prices  temporarily  in  particular  districts 
within  which  competition  has  appeared. 
There  has  been  practically  no  limit  to  which 


UNFAIRNESS  IN  PUBLIC  CALLINGS    211 

price  would  not  be  cut. in  this  competitive 
district  to  accomplish  the  ruin  of  a  com- 
petitor. And  often  the  campaign  would  be 
supported  by  raising  the  price  in  the  country 
at  large.  Such  local  discrimination  would  be 
held  illegal  by  the  law  now  developing 
against  disproportionate  charging.  Even  at 
the  present  time  that  law  has  developed 
enough  to  declare  illegal  serving  at  a  loss 
in  one  locality,  while  demanding  a  com- 
pensatory price  in  another.  If  the  law  of 
public  employment  were  applied  to  the  trusts, 
therefore,  most  of  the  tactics  pursued  in  their 
predatory  campaigns  would  be  held  to  be  al- 
together illegal.  For  against  discrimination, 
whether  personal  or  local,  the  law  is  now  set. 


VIII 

There  is  a  clash  of  interests  here;  and 
there  has  been  an  inclination  on  the  part 
of  those  who  conduct  these  monopolistic 
businesses  to  contest  every  issue.  Tliis  is 
hardly  an  enlightened  selfishness;  for  it  seems 
to  many  who  appreciate  the  temper  of  the 
pubhc,  that  the  time  has  come  when  exten- 
sion of  the  law  and  enforcement  of  it  should 
be  the  avowed   attitude  of  all   conservative 


212    THE  CONTROL  OF  THE  MARKET 

persons  who  wish  the  perpetuation  of  the 
present  condition  of  individual  enterprise. 
This  memorable  year  has  seen  the  beginning 
of  a  great  compromise  between  the  public 
and  the  monopolies.  The  Attorney  General 
of  the  United  States  has  called  for  the  regu- 
lation of  the  trusts  by  laws  similar  to  those 
now  in  force  against  the  carriers;  and  the 
chairman  of  one  of  the  greatest  combinations 
has  openly  declared  that  the  trusts  are  ready 
to  accept  legislation  going  even  to  that  ex- 
tent. Regulation,  it  is  agreed,  is  the  neces- 
sary concomitant  of  monopolization.  Those 
who  conduct  a  business  affected  with  a  public 
interest,  it  is  admitted,  may  not  adopt  to  the 
prejudice  of  the  public  the  business  policies 
which  will  get  them  the  most.  The  law, 
it  is  conceded,  must  see  to  it  that  the  power 
of  the  monopolist  over  the  market  is  not 
abused.  And  the  industrial  wrongs  of  the 
last  generation,  it  is  recognized,  must  not 
be  repeated. 


NOTE 

The  following  cases  of  illegal  discrimination  will  bring 
the  policy  out  more  clearly:  Wight  v.  United  States, 
167  U.  S.  512  (1886);  Wester  Union  Telegraph  Co.  v. 
Call  Publishing  Co.,  181  U.  S.  92  (1901);  Mobile  v. 
Binville  Water  Co.,  130  Ala.  379  (1901) ;  Snell  v.  Clin- 
ton Electric  Co.,  196  111.  626  (1902);  Louisville  &  E. 
St.  Ry.  Co.  V.  Wilson,  132  Ind.  517  (1892);  Messenger 
V.  Pennsylvania  Ry.  Co.,  17  Vroom.  407  (1874);  Griffin 
V.  Goldsboro  Water  Co.,  122  N.  C.  206  (1898);  Scofield 
V.  Lake  Shore  Ry.,  43  Oh.  St.  571  (1885);  Lorraine  v. 
Pittsburg  J.  E.  &  E.  R.  R.  Co.,  205  Pa.  St.  132  (1903)  ; 
Fitzgerald  v.  Grand  Trunk  Ry.  Co.,  63  Vt.  169  (1891). 

For  the  distinction  by  which  diflferences  based  upon 
cost  are  held  justifiable  see,  among  other  cases,  Wight  v. 
United  States,  167  U.  S.  512  (1886);  Savitz  v.  Ohio  & 
M.  Ry.  Co.,  150  111.  208  (1894);  Root  v.  Long  Island 
R.  R.  Co.,  114  N.  Y.  330  (1889);  State  v.  Cincinnati, 
N.  O.  &  T.  P.  R.  R.  Co.,  47  Oh.  St.  180  (1890). 


213 


CHAPTER  X 

ENFOECEMENT    OF    THE    ANTI-TEUST    STATUTE 


It  has  been  seen  in  the  earlier  chapters 
of  this  book  what  was  the  common  law 
for  the  regulation  of  combinations  in  re- 
straint of  interstate  commerce  in  recent 
times.  That  law  was  adequate  enough  on 
the  substantive  side, — in  its  definition  of  what 
was  legal  and  what  was  illegal;  but  it  was 
too  weak  on  the  remedial  side, — in  that 
the  existing  processes  had  shown  themselves 
wholly  ineffectual  to  deal  with  the  new  con- 
ditions. It  had  been  apparent  for  some  time 
that  there  had  arisen  in  very  many  of  those 
important  industries  which  purvey  the  neces- 
sities of  life,  great  leaders  who,  with  those 
whom  they  had  associated  with  them,  were 
with  startling  success  taking  advantage  of 
those  economic  forces  which  had  long  been 
making  for  greater  concentration.  It  was 
just  before  1880  that  these  captains  won  in 
their  respective  industries  the  battles  which 

214 


THE  ANTI-TRUST  STATUTE         215 

had  assured  their  power.  And  long  before 
1890  these  new  conditions  became  generally 
understood  by  reason  of  the  many  abuses  of 
which  those  who  had  gained  this  great  power 
were  guilty.  The  country  finally  awoke  to 
the  fact  that  these  captains  of  these  indus- 
tries were  doing  about  as  they  pleased.  It 
was  at  this  critical  time  that  the  allied  in- 
terests insolently  challenged  the  public  by 
the  open  announcement  of  the  industrial 
trusts,  which  have  given  their  name  to  the 
whole  problem,  although  these  original 
trusts  have  long  since  been  dissolved. 


To  the  most  superficial  observers  of  cur- 
rent events  it  thus  became  evident  that  the 
very  existence  of  the  competitive  system 
was  threatened  by  the  industrial  reorganiza- 
tion which  was  being  worked  out  so  suddenly. 
In  a  great  fear  that,  if  this  movement  should 
be  allowed  to  gather  more  momentum,  the 
very  foundations  of  industrial  society  might 
be  shaken,  there  was  a  widespread  appeal 
from  all  classes  for  remedial  legislation,  upon 
the  justifiable  ground  of  the  demonstrated 
inadequacy  of  the  common  law  to  grapple 


216    THE  CONTROL  OF  THE  MARKET 

with  the  chief  offenders.  As  generally  hap- 
pens under  our  Federal  system,  legislation 
began  in  the  states  before  the  Federal 
statute  was  enacted;  and  as  has  usually  been 
the  outcome,  the  Federal  legislation  is  more 
thoroughgoing  than  in  some  states,  but  less 
extreme- than  in  others.  It  cannot  be  denied 
that  in  some  respects  this  anti-trust  legisla- 
tion was  absolutely  necessary,  for  unless 
effective  processes  had  been  promptly  pro- 
vided, there  would  have  been  no  way  to  deal 
with  those  commercial  brigands  who  were 
making  further  plans  for  predatory  raids 
upon  a  helpless  population.  It  has  been  the 
fashion  of  late  years  to  sneer  at  the  anti- 
trust legislation  as  the  unintelligent  attempt 
of  a  visionary  people  who  confidently  under- 
took the  hopeless  task  of  putting  an  imme- 
diate end  to  an  irresistible  evolution  by  legis- 
lative fiat.  But  in  view  of  the  existing  condi- 
tions it  was  obvious  enough  that  immediate 
provision  was  necessary  for  the  effective 
prosecution  of  such  extreme  cases  as  should 
seem  to  the  administration  to  demand  action, 
so  that  the  situation  might  not  get  beyond 
all  control. 

This  Federal  anti-trust  law  of  1890— the 
so-called     Sherman     Act — ^begins     by    sum- 


THE  ANTI-TRUST  STATUTE         217 

marizing  briefly  what  constitutes  illegal  re- 
straint of  trade  and  concludes  by  somewhat 
more  elaborately  setting  forth  the  new 
remedies  provided.  On  the  substantive  side 
it  first  declares  illegal  "  every  contract,  com- 
bination in  the  form  of  trust  or  otherwise, 
or  conspiracy,  in  restraint  of  trade  of  com- 
merce among  the  several  states  or  with 
foreign  nations."  It  next  declares  against  all 
who  shall  "  monopolize  or  attempt  to  mo- 
nopolize "  interstate  or  foreign  commerce. 
On  the  remedial  side,  the  act  provided  two 
wholly  new  processes.  The  first  was  a  spe- 
cial proceeding  to  be  brought  under  the 
authority  of  the  Attorney  General  to  have 
ordered  the  dissolution  of  a  combination  in 
restraint  of  trade.  The  second  was  a  special 
action  for  treble  damages  available  to  any 
person  injured  in  his  business  by  the  machi- 
nations of  a  combination. 

As  matters  have  worked  out  so  far,  it  is 
to  these  new  remedies  that  chief  importance 
has  attached.  There  has  been  some  consid- 
eration given  to  these  other  provisions,  for 
example  the  problem  whether  the  statute  in 
thus  condemning  every  contract  and  com- 
bination made  void  and  illegal  all  arrange- 
ments— reasonable   as   well   as   unreasonable. 


218    THE  CONTROL  OF  THE  MARKET 

And  again,  what  constitutes  monopolizing  has 
been  brought  up,  but  not  settled.  But  it  is 
rather  those  special  proceedings,  initiated  by 
the  Attorney  General,  to  have  dissolved  the 
most  notorious  of  the  great  combinations, 
which  have  engaged  public  interest.  It  is, 
therefore,  chiefly  the  story  of  the  progression 
of  these  proceedings  that  will  be  told  here. 
But,  incidentally,  reference  will  be  made  to 
the  suits  that  have  been  brought  for  treble 
damages  under  the  other  provision,  although 
these  have  been  few,  as  private  citizens  have 
thus  far  been  content  generally  to  leave  it  to 
the  Government  to  bear  the  brunt  of  working 
out  through  the  injunction  proceedings  the 
real  scope  of  the  legislation. 


Ill 

The  Federal  authorities  met  such  serious 
reverses  in  the  first  campaign  against  the 
trusts  under  the  Sherman  Act  that  it  seemed, 
for  the  time  being,  that  the  anti-trust  legis- 
lation was  destined  to  prove  wholly  ineffect- 
ual. The  department  of  justice  after  some 
delays  picked  out  two  of  the  most  notorious 
trusts  for  its  first  attack — the  Sugar  Trust 
and  the  Whisky  Trust.     In  the  proceedings 


THE  ANTI-TRUST  STATUTE         219 

against  the  Sugar  Trust  the  E.  C.  Knight 
Company  (156  U.  S.  1)  was  named  first,  as 
its  absorption  into  that  trust  was  of  recent 
notoriety.  And  the  proof  adduced  was,  if 
anything,  too  elaborate  as  to  the  formation  of 
this  combination  among  the  sugar  refiners — 
but  very  httle  was  brought  forward  in  the 
direct  evidence  as  to  the  interstate  trade  of 
these  refiners.  When  therefore  the  Supreme 
Court  of  the  United  States  passed  upon  the 
case,  being  necessarily  confined  to  the  record 
submitted,  the  majority  of  the  court  held 
that,  although  the  combination  in  the  form  of 
a  trust  was  certainly  within  the  terms  of  the 
statute,  no  more  appeared  upon  the  record 
than  a  restraint  of  manufacturing  thereby. 
"  Commerce  succeeds  to  manufacture,  and  is 
not  a  part  of  it,'*  said  Chief  Justice  Fuller. 
And,  as  manufacturing  was  of  necessity 
within  particular  states,  such  restraint  did 
not  fall  within  the  scope  of  a  Federal  statute, 
no  restraint  of  commerce  between  states 
being  shown.  The  real  truth  seems  to  be 
that  the  Government  attorneys  were  no 
match  for  the  trust  lawyers;  and  the  Su- 
preme Court  had  not  as  yet  learned  to 
appreciate  the  real  scope  of  the  new  legis- 
lation. 


220    THE  CONTROL  OF  THE  MARKET 

Other  proceedings  against  commercial 
combinations  failed.  These  "  stock-yard 
cases,"  as  they  are  known  (171  U.  S.  578, 
604) ;  one  against  Hopkins  as  a  member  of 
the  Kansas  City  Live  Stock  Exchange;  the 
other  against  Anderson,  as  a  member  of  the 
Traders'  Live  Stock  Exchange,  were  sub- 
stantially similar.  The  by-laws  of  both 
associations  disclosed  restrictions  upon  the 
compensation  to  be  taken.  But  the  Supreme 
Court  adhered  to  their  principle  that  in  order 
to  come  within  the  provision  of  the  statute, 
the  direct  effect  of  the  combination  must  be 
to  restrain  interstate  commerce.  "  There 
must  be  some  direct  and  immediate  effect 
upon  interstate  commerce  in  order  to  come 
within  the  act,"  said  Mr.  Justice  Peckham. 
It  has  since  been  appreciated  that  these  cases 
do  not  really  diminish  the  proper  scope  of 
Federal  legislation.  These  cases  now  stand 
simply  for  the  proper  distinction  that  those 
things  which  only  indirectly  affect  interstate 
commerce  do  not  fall  within  the  Federal 
jurisdiction.  There  have  been  several  ex- 
amples of  this  alternative  in  recent  decisions 
which  are  generally  accepted  as  entirely 
sound.  But  it  seemed  at  the  time  that  the 
Supreme  Court  was  still  persistently  refus- 


THE  ANTI-TRUST  STATUTE  221 

ing  to  give  to  the  anti-trust  statute  the  ex- 
pected application. 

IV 

Strange  often  are  the  events  by  which 
progress  is  made.  The  Sherman  Act  had 
thus  within  a  few  years  apparently  been  con- 
signed to  a  subsequent  career  of  innocuous 
desuetude  by  the  trust  lawyers  when  an  in- 
dustrial crisis  suddenly  arose  in  which  the 
aid  of  the  eminent  lawyers  of  this  higher 
coterie  was  given  to  the  Government  side. 
This  railroad  strike  of  1894  soon  threatened 
a  social  upheaval.  And  as  conditions  grew 
worse  it  was  felt  that  only  by  an  appeal  to 
the  Federal  Government  was  its  course  to  be 
stayed.  It  was  under  the  Federal  law  that 
its  leaders  were  seized  and  its  forces  finally 
disorganized.  In  these  Federal  proceedings 
the  point  was  made  prominent  that  unions 
were  combinations  plainly  designed  to  re- 
strain commerce  between  the  States,  by  in- 
terfering with  the  movement  of  inter- 
state trains.  For  contempt  of  an  in- 
junction based  largely  upon  the  Federal 
anti-trust  statute  Debs  (158  U.  S.  564) 
went  to  his  spectacular  imprisonment.  But 
these  proceedings  were  not  confirmed  with- 


222    THE  CONTROL  OF  THE  MARKET 

out  great  argument  in  support  of  the  juris- 
diction of  the  Federal  Government;  and  in 
accepting  these  arguments  the  courts  went 
far  towards  holding  that  any  combination 
whose  action  really  affected  interstate  com- 
merce was  within  the   Sherman  Act. 

We  are  used  to  this  doctrine  now^  par- 
ticularly since  the  case  of  the  boycott  against 
the  Danbury  hatters  (208  U.  S.  274)  ;  but 
at  the  time  it  seemed  the  irony  of  fate  that 
the  anti-trust  law  should  thus  far  be  found 
without  effect  against  combinations  of  capital, 
but  directly  applicable  to  combinations  of 
labor.  There  have  been  other  instances  where 
the  anti-trust  laws  have  been  employed  against 
combinations  of  labor;  and  there  will  be  more 
now  that  it  is  appreciated  that  the  thing  most 
abhorrent  to  the  statute  is  monopolization. 
For  nothing  can  be  more  clearly  monopoliza- 
tion than  the  unionizing  policies  of  many  of 
the  present  unions.  To  exclude  others  from 
a  market  is  the  very  definition  of  monopoliza- 
tion; and  the  unions  are  more  frank  in  avow- 
ing this  to  be  their  object  than  the  trusts  are. 
The  managers  of  the  trusts  make  much  talk 
of  the  savings  of  large  scale  production  as  the 
basis  of  their  profits,  to  conceal  the  fact  that 
much  of  this  profit  is  the  direct  result  of  their 


THE  ANTI-TRUST  STATUTE 

monopoly.  The  labor  leaders  say  frankly 
that  they  must  have  monopoly  in  order  to  get 
better  wages;  they  seldom  argue  with  con- 
viction that  union  labor  is  more  economical. 


The  railroad  pools  were  the  first  commer- 
cial combinations  to  feel  the  force  of  the  act; 
railroads,  indeed,  were  indisputably  engaged 
in  interstate  commerce.  The  Trans-Missouri 
Freight  Association  (166  U.  S.  290)  was  the 
first  to  be  attacked.  This  was  a  railroad  pool 
of  the  typical  sort,  providing  for  a  distribu- 
tion of  traffic  and  a  division  of  its  freights 
upon  a  pro  rata  basis.  Any  arrangement  of 
this  kind  plainly  does  away  with  real  com- 
petition; and  as  such  combinations  have  al- 
ways been  regarded  as  illegal  at  common  law, 
it  was  plainly  right  to  hold  this  pool  a  com- 
bination in  restraint  of  trade  within  the  words 
of  the  statute.  Still  the  railway  bar,  arrayed 
now  in  behalf  of  its  own  patrons,  made  a 
desperate  attack  upon  the  application  of  the 
statute.  But  the  Supreme  Court,  now  be- 
come more  sophisticated,  held  that,  as  the 
direct  effect  of  this  combination  was  to  con- 
trol competition  in  transportation  between  the 


THE  CONTROL  OF  THE  MARKET 

states,  its  continuance  constituted  a  plain 
restraint  of  interstate  commerce.  A  little 
later  the  case  of  the  Joint  Passenger  Traffic 
Association  (171  U.  S.  505)  came  on  for 
disposition.  The  draftsmen  of  that  agreement 
had  seen  to  it  that  the  pooling  did  not  go  so 
far  as  formerly,  and  indeed,  out  of  abundant 
caution,  had  put  in  a  clause  that  nothing 
therein  should  be  construed  as  in  violation  of 
the  anti-trust  law.  But,  as  the  substance 
of  competition  was  really  touched  by  the 
agreement,  the  Supreme  Court  said  that  this 
pool,  too,  should  be  dissolved  for  its  direct 
restraint  of  interstate  commerce. 

In  the  opinions  in  these  cases  the  court 
went  much  further  than  was  necessary  in  con- 
struing the  statute  to  apply  to  all  arrange- 
ments in  restraint  of  trade,  whether  reason- 
able or  unreasonable.  Unnecessary  as  it 
was  to  the  decision.  Justice  Peckham  said  in 
the  first  case:  "  By  the  simple  use  of  the  term 
contract  in  restraint  of  trade,  all  con- 
tracts of  that  nature,  whether  valid  at 
common  law  or  otherwise,  would  be  included, 
and  not  alone  that  kind  of  contract  which 
was  invalid  or  unenforceable  as  being  un- 
reasonable restraint  of  trade."  Before  this 
dictum  was  overruled  it  was  destined  to  cause 


THE  ANTI-TRUST  STATUTE         225 

the  public  unnecessary  alarm  and  the  court 
itself  much  trouble. 

VI 

At  this  stage  some  people  may  have  thought 
that  all  the  future  had  in  store  had  been  dis- 
closed. It  might  have  been  said  that  proceed- 
ings against  the  industrial  trusts  would  con- 
tinue to  fail,  as  all  the  cases  against  them 
had  already  failed,  because  the  Supreme 
Court  would  be  satisfied  with  nothing  less 
than  the  direct  restraint  of  interstate  com- 
merce, which  could  be  found  in  its  pure  form 
only  in  the  very  conduct  of  interstate  trans- 
portation. But  closer  readers  of  these  deci- 
sions would  have  seen  that  the  current  of 
opinion  in  the  court  had  now  set  in  a  new 
direction. 

At  all  events  this  new  appreciation  by  the 
Supreme  Court  of  the  real  scope  of  the 
Sherman  Act  was  soon  made  manifest  to  all 
in  the  decision  against  the  Addystone  Pipe 
Company  (175  U.  S.  211)  and  the  other  foun- 
dries associated  with  it.  This  combination  in- 
cluded the  principal  makers  of  iron  pipe  in 
large  sizes  between  the  Appalachian  Moun- 
tains and  the  Rocky  Mountains.  By  the 
rules  of  the   association,  no  sales   could  be 


226    THE  CONTROL  OF  THE  MARKET 

made  by  any  member  of  the  association  until 
he  had  bought  the  right  to  do  so  from  the 
association.  These  rights  were  sold  over  the 
table  at  secret  auctions,  regularly  conducted. 
Did  Omaha  advertise  for  more  pipe  for  its 
waterworks;  Omaha  was  put  up  at  auction. 
The  concern  that  thus  bought  the  right  to 
sell  to  Omaha  could  then  charge  Omaha  any 
price  it  pleased.  Indeed,  other  members  on 
request  were  bound  to  put  in  bids  higher  still. 
It  is  needless  to  say  that  this  pool  was  a 
combination  in  restraint  of  trade  by  any  test. 
In  view  of  what  had  previously  been  de- 
cided, the  important  question  still  remained 
whether  the  Supreme  Court  would  hold  this 
to  be  restraint  of  interstate  commerce.  But 
the  doctrine  which  was  now  laid  down  by 
the  Supreme  Court  in  the  Addystone  case 
was  that,  as  real  suppression  of  previous  com- 
petition in  actual  selling  across  state  lines 
was  shown,  these  facts  made  out  a  sufficient 
restraint  of  interstate  commerce.  And  the 
Addystone  case  thus  marks  a  great  advance 
in  Government's  offense,  especially  as,  in  the 
course  of  the  final  decision,  Mr.  Justice  Peck- 
ham  said:  "  Total  restraint  of  trade  in  the 
commodity  is  not  necessary  in  order  to  render 
the  combination  one  in  restraint  of  trade." 


THE  ANTI-TRUST  STATUTE         227 

Since  this  decision  there  has  been  no 
doubt  that  whenever  those  who  are  engaged 
in  interstate  commerce  by  making  a  com- 
bination substantially  put  an  end  to  their 
competitive  dealings,  this  constitutes  such  re- 
straint of  interstate  commerce  as  to  be  within 
the  Federal  jurisdiction.  In  the  Swift  case 
(196  U.  S.  375)  this  was  made  plain  beyond 
all  doubt.  To  be  sure,  the  decision  of 
this  case  might  seem  to  a  layman  to  be 
made  easier  by  the  fact  that  Swift  &  Com- 
pany and  its  alleged  confederates  admitted 
by  their  demurrer  all  of  the  sinister  acts 
attributed  to  them.  But  granted  that  these 
Chicago  packers  had  an  arrangement  among 
themselves  not  to  bid  against  each  other  in 
the  regular  sales  at  the  stock-yards,  the 
question  of  Federal  jurisdiction  still  re- 
mained. And  the  Supreme  Court  held  that 
it  does  not  matter  that  the  combination  acted 
within  a  single  state,  if  that  action  really 
suppressed  previous  competition  in  inter- 
state trade.  Mr.  Justice  Holmes  well 
brought  out  the  essential  point  in  restraint 
of  trade  when  he  said:  "The  scheme  as  a 
whole  seems  to  us  within  the  reach  of  the 
law.  It  is  suggested  that  the  several  acts 
charged  are  lawful,  and  that  intent  can  make 


228    THE  CONTROL  OF  THE  MARKET 

no  difference.  But  they  are  bound  together 
as  parts  of  a  single  plan.  The  plan  may 
make  the  parts  unlawful." 

It  makes  no  practical  difference  whether 
you  say  baldly  that  the  Knight  case  has 
really  been  overruled  by  the  Addystone  case, 
because  the  court  has  acquired  a  new  point  of 
view,  or  whether  you  say  that  it  is  the 
prosecuting  officers  who  have  learned,  as 
this  case  of  Swift  &  Company  has  abundantly 
showed,  how  to  present  their  case  so  as  to 
bring  an  industrial  combination  within  the 
Trans-Missouri  case.  The  real  truth  is  that 
all  concerned  have  been  greatly  influenced 
by  the  indignant  opinion  of  an  outraged 
public,  for  ordinary  laymen  could  not  but 
feel  that  the  anti-trust  statute  was  inexpli- 
cably nullified  if  it  could  reach  various  of- 
fenders, but  never  the  trusts  themselves. 


VII 

The  law  against  the  earlier  forms  of  com- 
bination without  central  incorporation,  there- 
fore, can  be  considered  settled.  But  the  great 
problem  remains  whether  these  newer  forms 
which  have  central  incorporation  should  be 
held  legal.    Such  a  combination  was  destined 


THE  ANTI-TRUST  STATUTE         229 

soon  to  be  tested  by  the  organization  in 
1901  of  the  Northern  Securities  Company  of 
New  Jersey  to  take  over  the  majority  of  the 
stocks  of  the  Northern  Pacific  and  the  Great 
Northern  after  the  bitter  campaign  of  that 
year  in  the  stock  market.  This  is  no  place 
to  retell  the  story  of  that  bloody  campaign 
for  the  control  of  the  borderland  between  the 
Hill  territory  and  the  Harriman  territory 
which  terminated  in  this  treaty  of  peace. 
The  outcome  is  too  recent  history  to  require 
restatement.  In  the  Northern  Securities 
case  (193  U.  S.  197)  the  Supreme  Court 
ordered  that  the  New  Jersey  holding  cor- 
poration should  divest  itself  of  its  holdings 
of  these  stocks  of  these  railways,  as  the 
holding  was  in  violation  of  the  Sherman 
Act.  And  in  the  Harriman  case  (197  U.  S. 
244)  the  Supreme  Court  ordered  that  the 
Northern  Pacific  shares  should  be  distributed 
pro  rata  to  the  stockholders  in  the  Northern 
Securities  Company,  thus  giving  the  final 
victory  to  the  Hill  allies. 

The  decision  in  the  Northern  Securities 
case  was  a  peculiar  one.  Four  of  the  justices 
thought  the  holding  scheme  wholly  bad;  four 
thought  it  no  violation  of  the  Sherman  Act. 
Mr.    Justice    Brewer   held    the    balance    of 


230    THE  CONTROL  OF  THE  MARKET 

power,  taking  the  position  that  the  arrange- 
ment was  bad  as  involving  total  suppression 
of  competition,  but  saying  clearly  that,  if 
the  scheme  had  been  a  reasonable  one,  it 
would  not  have  been  within  the  prohibition  of 
the  act.  Thus  the  Northern  Securities  case 
was  the  handwriting  upon  the  wall.  All  who 
could  have  read  its  message  must  have  seen 
that  the  Federal  Government  was  now  given 
full  power  under  the  Sherrnan  Act  to  deal 
with  any  combination  unreasonably  restrict- 
ing interstate  commerce.  After  the  Northern 
Securities  case  it  must  have  been  plain  what 
the  outcome  was  to  be  as  to  any  form  of 
combination  designed  to  suppress  competi- 
tion. The  Addystone  case  had  shown  that 
the  Sherman  law  applied  to  the  case  of  an 
industrial  combination  engaged  in  inter- 
state commerce  as  much  as  it  did  to  a 
railroad  pool,  such  as  was  held  illegal  in  the 
Trans-Missouri  case.  The  Northern  Securi- 
ties, having  settled  the  matter  for  interstate 
traffic,  was  consequently  a  direct  precedent 
for  condemning  such  a  holding  scheme  as 
the  combination  by  which  the  Standard  Oil 
concern  restrained  interstate  trade.  Although 
there  are  many  laymen  and  lawyers  who 
have    inveighed    against    the    Northern    Se- 


THE  ANTI-TRUST  STATUTE         231 

curities  decision,  and  all  that  it  may  work, 
still  the  weight  not  only  of  public  opinion 
but  also  of  legal  acceptation  seems  to  be 
with  it,  and  what  it  fairly  means.  The  sud- 
den elimination  of  existing  competition, 
without  asking  leave  of  anybody,  which  the 
holding  corporation  brings  about,  is  still  re- 
garded by  the  mass  of  men  as  a  social 
danger.  Moreover,  from  a  technical  point  of 
view,  the  Securities  decision  appeals  to  the  ma- 
jority of  lawyers,  although  there  are  various 
dissenters.  Indeed,  to  a  reflecting  lawyer 
the  decision  against  the  holding  corporation 
logically  follows  from  the  decision  against 
the  trust  arrangement.  For  in  both  the 
salient  fact  is  that  former  competitors,  still 
existing,  are  now  bound  together  so  that  they 
will  no  longer  compete.  It  will  not  do  to  tell 
courts  which  look  into  the  substance  of  things 
that  there  is  no  direct  contract  between  these 
constituent  companies.  The  fact  remains 
that  the  scheme  complained  of  makes  them 
substantially  participants  in  a  combination. 
This  constitutes  an  overt  combination  sup- 
pressing competition,  notwithstanding  that 
the  combination  is  the  work  of  an  interme- 
diate corporation. 


232    THE  CONTROL  OF  THE  MARKET 

vm 

To  one  writing  of  the  history  of  this 
long  campaign  against  the  trusts  in  this 
present  year,  the  previous  decisions  which 
have  just  been  detailed  seem  all  to  be  lead- 
ing up  to  the  great  Standard  Oil  decision, 
just  announced  after  long  consideration  by 
the  Supreme  Court  in  the  last  term.  In  the 
Standard  Oil  prosecution  there  was  shown 
such  a  combination  as  to  eliminate  all  possi- 
bility of  competition.  Indeed,  through  the 
New  Jersey  holding  corporation  all  of  the 
operations  of  the  constituent  companies  were 
so  centralized  that  the  business  was  con- 
ducted practically  as  that  of  one  concern  with 
divers  departments.  It  is  needless  to  rehearse 
the  facts.  Every  reader  of  our  periodicals 
knows  more  about  the  rise  of  the  Standard 
Oil  Company  than  of  that  of  any  dynasty 
in  all  history;  and,  indeed,  the  rise  of  the 
Standard  Oil  Company  is  one  of  the  most 
interesting  stories  in  economic  history. 
Despite  all  that  was  said  in  its  behalf,  the 
Supreme  Court  was  unanimously  of  the 
opinion  that  its  organization  was  in  flagrant 
violation  of  the  Sherman  Act.  Hitherto  the 
Standard  Oil  concerns  have  survived  litiga- 


THE  ANTI-TRUST  STATUTE         233 

tion  in  some  form  or  other,  but  now  without 
the  consent  of  the  law  this  combination  can- 
not any  longer  perpetuate  its  monopoly  as 
its  designers  planned  it. 

The  most  important  point  in  the  decision 
was  the  insistence  upon  the  doctrine  that  not- 
withstanding the  sweeping  language  against 
schemes  to  restrain  trade  in  the  Act,  it  is 
only  unreasonable  restraint  that  is  meant. 
This  is  but  following  the  well  recognized 
canon  of  statutory  interpretation  that,  in 
construing  a  statute  using  common  law 
phrases,  these  shall  receive  their  common  law 
meaning.  Now,  the  common  law  against 
restraint  of  trade,  from  time  immemorial,  as 
has  been  seen,  has  distinguished  between 
undue  restraints  and  reasonable  arrange- 
ments. As  the  Supreme  Court  now  appre- 
ciates, it  should  have  thus  construed  the 
Sherman  law  from  the  outset. 

In  the  Standard  Oil  case  the  Supreme 
Court  (all  but  the  radical  Harlan)  frankly 
disavowed  this  dictum  in  wise  and  states- 
manlike language  sanctioned  by  every  prin- 
ciple of  law  and  justice.  "  Not  specifying 
but  indubitably  requiring  a  standard,"  said 
the  Chief  Justice,  *'  it  follows  that  it  was 
intended  that  the  standard  of  reason  which 


234    THE  CONTROL  OF  THE  MARKET 

had  been  applied  at  the  common  law  and 
in  this  country  in  dealing  with  subjects  of 
the  character  embraced  by  the  statute, 
was  intended  to  be  the  measure  used  for 
the  purpose  of  determining  whether  in  a 
given  case  a  particular  act  had  or  had  not 
brought  about  the  wrong  against  which  the 
statute  provided." 

The  Standard  Oil  case  thus  will  stand 
in  the  history  of  this  long  campaign  against 
the  trusts  as  establishing  the  sound  doctrine 
of  reasonableness.  By  the  enforcement  of 
this  standard  the  "  good "  trusts  may  ulti- 
mately be  separated  from  the  "bad";  for 
there  is  a  long  course  of  judicial  decisions 
dating  back  to  the  mediaeval  year-books  dis- 
tinguishing illegal  restraint  from  reasonable 
arrangements.  Those  who  have  faith  in  the 
essential  justice  of  our  common  law  will 
wish  no  amendment  of  the  Sherman  Act,  now 
that  it  has  adopted  the  common  law  standard. 


IX 

In  the  later  Tobacco  decision  of  this  memo- 
rable year,  we  have  a  fuller  revelation  of  the 
new  trust  policy.  What  is  in  violation  of  the 
trust  law  is  now  become  a  question  of  sub- 


THE  ANTI-TRUST  STATUTE         235 

stance  rather  than  of  form.  Mere  combina- 
tion is  no  longer  wrong  in  itself — ^it  is  mo- 
nopolization which  the  law  seeks  to  prevent. 
Those  who  are  enlarging  their  business  in 
normal  ways  need  no  longer  fear  the  trust 
law;  it  is  the  abnormal  policy  of  driving 
others  out  of  the  business  which  must  be 
abandoned.  As  the  Supreme  Court  has  just 
said,  in  view  of  the  general  language  of  the 
statute  and  the  public  policy  which  it  mani- 
fests, there  is  no  possibility  of  frustrating 
that  policy  by  resorting  to  any  disguise  or 
subterfuge  of  form,  since  resort  to  reason 
as  the  standard  renders  it  impossible  to  escape 
by  any  indirection  the  prohibitions  of  the 
law.  We  are  to  be  governed  by  this  rule 
of  reason  thenceforth  in  any  judicial  deter- 
mination as  to  the  character  of  any  com- 
bination the  legality  of  which  is  brought 
in  issue. 

As  for  the  Tobacco  Trust  itself,  it  would 
be  hard  for  anyone  not  retained  by  it  to 
defend  its  practices  so  often  laid  bare  in  con- 
temporary litigation.  Its  history  is  one  of 
combination  upon  combination,  of  scheme 
after  scheme  to  secure  its  market  and  that  of 
its  competitors  by  fair  means  or  foul.  It  was 
the  undoubted  policy  of  those  who  were  in 


236    THE  CONTROL  OF  THE  MARKET 

control  to  make  it  impossible  for  anyone  else 
to  do  any  considerable  business  in  their 
territory  or  within  what  they  considered  their 
sphere  of  influence.  Smoking  tobacco  and 
chewing  tobacco,  cigarettes  and  cigars,  stogies 
and  snuff,  tinfoil  and  licorice — they  bought 
out  the  principal  companies  engaged  in  these 
lines  and  forced  out  the  others.  The  most 
ruthless  of  their  policies  was  their  insistence 
upon  exclusive  dealings;  they  would  often 
practically  refuse  to  sell  their  long-estab- 
lished brands  (which  a  retailer  must  have  in 
stock)  to  any  dealer  who  carried  the  goods 
of  a  competitor. 

Again,  if  they  decided  to  enter  a  new 
field,  as  when  they  took  on  plug  tobacco,  they 
would  not  hesitate  to  lose  millions  in  under- 
selling to  accomplish  the  ruin  of  those  recal- 
citrant firms  which  would  not  come  in.  The 
tobacco  decision  at  least  teaches  what  prac- 
tices to  avoid.  People  who  have  still  the 
older  notion  of  industrial  freedom  may  not 
be  shocked  by  this  recital.  But  according  to 
modern  ideas  such  predatory  tactics  are  pun- 
ishable offenses  against  the  industrial  peace. 
Such  schemes  conclusively  establish  the  de- 
liberate purpose  to  restrain  the  freedom 
of    a    trade    by    monopolizing    it.      And    it 


THE  ANTI-TRUST  STATUTE         237 

is  against  such  monopolization  that  the 
trust  law  is  to  be  directed  primarily  hence- 
forth. 

There  is  always  some  feature  in  every  note- 
worthy case  which  prevents  one  from  saying 
that  no  more  was  decided  than  could  have 
been  predicted.  In  the  Tobacco  case  this  sur- 
prise comes  in  the  final  decree.  The  Supreme 
Court  directed  the  court  below  to  hear  and 
advise  the  parties  to  the  combination  for  the 
purpose  of  ascertaining  and  determining 
upon  some  plan  or  method  of  dissolving  the 
combination  and  re-creating  out  of  the  ele- 
ments now  comprising  it  a  new  condition, 
which  shall  be  honestly  in  harmony  with  and 
not  repugnant  to  the  law  as  declared  by  the 
court.  This  order  is  undoubtedly  the  salient 
feature  of  the  Tobacco  decision.  It  is  most 
imusual  for  courts  to  undertake  to  show 
parties  how  they  may  conform  with  the  law; 
but  destructive  measures  are  giving  way  to 
constructive  policies.  One  must  not,  however, 
expect  too  much;  there  must  be  other  deci- 
sions before  we  shall  know  with  real  cer- 
tainty what  is  reasonable  and  what  is  un- 
reasonable. But  by  adopting  this  policy  of 
taking  charge  of  the  reorganization,  the 
courts  will  let  us  know  what  their  distinction 


238    THE  CONTROL  OF  THE  MARKET 

is  to  be  years  before  we  could  know  it  through 
the  ordinary  course  of  decisions. 


X 

The  Supreme  Court  has  therefore  prom- 
ised us  that  we  are  to  have  the  rule  of  reason 
henceforth  in  enforcing  the  anti-trust  law. 
Very  probably  we  shall  have  more  legislation 
on  the  subject  of  the  trusts,  but  the  lines 
upon  which  this  legislation  will  proceed  have 
been  laid  down  by  the  courts  already.  Fed- 
eral registration  or  incorporation,  if  it  comes, 
will  simply  protect  a  trust  in  acting  reason- 
ably. Federal  control  or  regulation,  if  it 
comes,  will  see  to  it  that  the  good  trusts  are 
not  punished  with  the  bad.  The  proof  that 
this  is  a  practicable  programme  may  be 
found  in  the  fact  that  the  Supreme  Court 
has  from  the  beginning  acted  upon  this 
principle,  while  professing  up  to  this  year 
not  to  be  free  to  be  reasonable  in  enforcing 
the  law.  The  Supreme  Court  has  never 
decided  against  any  combination  which  the 
great  majority  of  people  have  not  felt  de- 
served its  fate.  The  Trans-Missouri  Freight 
Association,  the  Addystone  pipe  pool,  the 
Northern   Securities   Company,  the   Chicago 


THE  ANTI-TRUST  STATUTE 

packers,  the  railway  strikers,  the  Federated 
boycotters — one  and  all  so  defied  public  opin- 
ion that  few  persons  could  be  found  who 
would  defend  their  conduct  as  reasonable. 
In  ordering  the  dissolution  of  Standard  Oil 
and  American  Tobacco  this  year,  the  Su- 
preme Court  has  simply  passed  sentence  on 
two  of  the  most  notorious  offenders  against 
our  industrial  peace,  long  ago  found  guilty 
by  the  country.  If,  then,  the  Supreme  Court 
has  in  fact  only  decided  against  the  most  out- 
rageous trusts  in  the  past,  need  any  concern 
which  is  acting  reasonably  have  fear  in  the 
future? 


NOTE 

The  discussion  in  this  chapter  has  been  confined  to 
United  States  Supreme  Court  cases  under  the  Federal 
Anti-Trust  Law.  Certain  cases  in  the  Federal  courts 
which  never  reached  the  Supreme  Court  are  too  impor- 
tant to  ignore  altogether.  Such  as:  American  Biscuit 
Co.  V.  Klotz,  44  Fed.  721  (1891);  United  States  v. 
Jellico  Coal  Co.,  46  Fed.  432  (1891);  United  States  v. 
Patterson,  55  Fed.  605  (1893);  Chesapeake  &  O.  Fuel 
Co.  V.  United  States,  115  Fed.  610  (1902). 

The  cases  under  the  State  anti-trust  laws  have  been 
quite  similar  to  those  under  the  Federal  law.  See — 
Chicago  Coal  Co.  v.  People,  214  111.  421;  Beechley  v. 
Mulville,  102  Iowa  602  (1897);  State  v.  Phipps,  50 
Kans.  609  (1893);  State  v.  Fireman's  Fund  Ins.  Co., 
152  Mo.  1;  Fire  Ins.  Co.  v.  State,  75  Miss.  24  (1897); 
People  V.  Sheldon,  139  N.  Y.  251  (1893);  State  v. 
Buckeye  Pipe  Line  Co.,  61  Oh.  St.  520  (1899);  State  v. 
Virginia-Carolina  Chemical  Co.,  71  S.  C.  544  (1904); 
State  V.  Witherspoon,  115  Tenn.  138  (1905);  Waters- 
Pierce  Oil  Co.  V.  State,  19  Tex.  Civ.  App.  1  (1898). 


241 


CHAPTER  XI 

RELIEF  AGAINST  PEEDATORY   COMPETITION 


Our  law  reports  during  the  last  two  dec- 
ades have  furnished  us  abundant  evidence 
of  the  industrial  wrongs  that  the  trusts  are 
perpetrating.  What  those  who  bear  the  brunt 
of  these  new  conditions  feel  most  strongly 
is  the  discriminations  that  these  great  cor- 
porations make  in  their  dealings.  These 
predatory  raids  which  the  robber  trusts  make 
into  the  field  of  peaceful  competition  raise 
the  chief  outcry  against  them.  And  this  just 
complaint  will  not  be  stopped  by  pointing 
out  that  this  sort  of  thing  has  been  done  all 
along  by  men  in  ordinary  businesses,  and  has 
not  been  held  unfair.  This  may  be  said  to 
be  the  most  important  of  the  recent  discov- 
eries about  the  potentialities  of  the  trusts, 
that  a  course  of  dealing  which  was  fair  enough 
in  carrying  on  the  former  smaller  businesses 
is  essentially  unfair  in  the  conduct  of  the 
later    larger   businesses.      This    is    the    real 


PREDATORY  COMPETITION  243 

explanation  of  the  cases  which  have  already 
been  considered  to  some  extent,  which  pro- 
tected an  individual  trader  against  the  aggres- 
sions of  a  combination  that  brought  coercion 
to  bear  upon  his  customers.  To  be  sure, 
in  competition  between  individuals  it  was  held 
permissible  to  threaten  a  customer  that,  unless 
he  gave  his  trade  exclusively,  he  would  not 
be  sold  anything.  But  for  a  combination  to 
make  the  same  statement  to  customers  was 
held  to  be  a  legal  wrong  by  the  majority 
of  cases.  Back  of  all  the  technique  employed 
to  explain  these  cases,  lies  the  idea  that  it  is 
essentially  wrong  to  abuse  monopolistic  power 
in  any  such  manner. 


In  view  of  the  authorities,  it  may  be  pre- 
dicted that  the  courts  are  going  to  do  some- 
thing to  protect  the  individual  in  business 
from  such  competition  by  such  combinations. 
The  will  to  do  this  was  seen  in  People  v.  Duke 
(44  N.  Y.  Supp.  336),  where  a  lower  New 
York  Court  held  that  the  group  of  men  who 
were  in  control  of  the  American  Tobacco 
Company  could  be  held  guilty  of  criminal 
conspiracy,  if  it  could  be  shown  that  they  were 
attempting  to  monopolize  the  tobacco  busi- 


U4i    THE  CONTROL  OF  THE  MARKET 

ness  by  coercing  and  compelling  dealers  and 
jobbers  to  deal  exclusively  in  the  goods  of 
their  company.  Upon  the  general  issue 
Judge  Fitzgerald  said:  "A  trading  corpora- 
tion is  entitled  to  all  the  advantages  it  can 
secure  under  fair  and  free  competition,  but 
its  officers  and  agents  may  become  criminally 
liable  if  they  confederate  to  secure  a  monopoly 
by  threats  and  menaces  directed  against 
competitors,  to  force  and  coerce  them  to  re- 
linquish the  rights  to  the  fullest  enjoyment 
of  which  all  are  entitled.  If,  then,  the  proof 
in  the  case  at  bar  should  establish  the  allega- 
tions of  the  indictment,  might  not  the  re- 
fusal to  sell  to  jobbers  and  dealers  except 
upon  the  required  conditions,  be  properly 
found  to  constitute  menace,  coercion,  and 
intimidation?  And  if  such  methods  or  de- 
vices were  resorted  to  by  defendants  to  re- 
strain lawful  trade  and  commerce,  and 
create  a  monopoly,  are  they  not  guilty  of  con- 
spiracy? " 

In  Massachusetts  recently  legislation  was 
passed  making  it  a  criminal  offense  to  make 
it  the  condition  of  the  sale  of  goods  that 
the  purchaser  should  not  sell  or  deal  in  the 
goods  of  any  person  other  than  the  seller. 
In  holding  this  restrictive  legislation  to  be 


PREDATORY  COMPETITION  245 

within  the  police  power  (Commonwealth  v. 
Strauss,  191  Mass.  545),  the  Chief  Justice 
of  Massachusetts  said,  for  his  court:  "We 
may  infer  that  the  Legislature  was  providing 
for  cases  in  which  this  particular  kind  of 
contract  would  be  unfair  competition  as 
against  weaker  dealers,  and  would  be  in- 
jurious to  the  public  as  tending  to  crush 
ordinary  competitors,  and  thus  create  a  mo- 
nopoly, from  which  the  community  as  con- 
sumers would  ultimately  suffer.  If,  at  the 
time  of  the  enactment  of  this  statute,  there 
were  dangers  of  this  kind  confronting  the 
people  of  this  Commonwealth,  and  if  this 
prohibition  is  a  reasonable  way  of  averting 
such  dangers,  we  find  justification  for  the 
legislation  unless  it  involves  a  serious  injury 
to  those  who  are  restrained  by  it." 


Ill 

The  Federal  Anti-Trust  Law,  as  will  have 
been  noted,  declares  against  two  kinds  of  in- 
dustrial wrongs,  which  it  is  very  difficult  to 
separate,  as  they  commonly  appear  together. 
Not  only  does  it  declare  against  combination 
in  restraint  of  trade,  but  also,  if  its  clauses 
be  sufficiently  analyzed,  it  will  be  seen  that 


U6    THE  CONTROL  OF  THE  MARKET 

it  declares  against  monopolization  by  anyone. 
The  emphasis  was  formerly  placed  upon  the 
first  of  these  sections,  but  now  it  has  ap- 
parently been  shifted  to  the  second.  Per- 
haps this  will  finally  result  in  showing  that 
the  statute  is  in  true  balance,  the  restraint 
of  trade  necessarily  involving  monopolization. 
It  is  restraint  of  trade  that  the  law  de- 
clares against.  The  act  has  nothing  to  say 
against  the  mere  curtailment  of  competition. 
Monopolization  was  adverted  to  by  the 
Supreme  Court  in  the  famous  Wallpaper 
case  of  a  few  years  ago  (212  U.  S.  227). 
The  Continental  Wallpaper  Company,  it  ap- 
peared, had  concentrated  into  its  control  all 
the  business  of  more  than  thirty  wallpaper 
concerns  producing  upwards  of  98  per  cent, 
of  the  wallpaper  in  the  United  States.  To 
perpetuate  the  monopoly,  which  had  thus  been 
acquired,  all  jobbers  in  their  purchases  were 
virtually  compelled  to  sign  a  jobbers'  agree- 
ment which  bound  them  to  buy  from  the 
Continental  Company  all  the  wallpaper  they 
should  handle  at  certain  prices,  and  not  to  re- 
sell except  on  certain  conditions.  If  the  job- 
ber should  not  buy  of  others,  and  should  ad- 
here to  the  conditions  named,  he  would  get 
a  rebate  from  the  purchase  price  originally 


PREDATORY  COMPETITION  247 

charged,  so  startling  a  reduction  as  to  make 
it  plain  that  the  original  price  was  a  fictitious 
price,  and  the  loss  of  the  rebate  virtually  a 
penalty  for  breaking  away  from  the  monopo- 
listic scheme.  The  Supreme  Court  would  not 
therefore  hold  a  jobber  to  the  contract  price 
for  goods  sold  him,  Mr.  Justice  Harlan  sum- 
marizing the  reasons  of  throwing  it  out  of 
court  briefly :  "  The  plaintiff  comes  into 
court  admitting  that  it  is  an  illegal  com- 
bination whose  operations  restrain  and  mo- 
nopolize commerce  and  trade  among  the 
states,  and  asks  a  judgment  that  will  give 
effect,  so  far  as  it  goes,  to  agreements  that 
constituted  that  combination,  and  by  means 
of  which  the  combination  proposes  to  accom- 
plish forbidden  ends.  We  hold  that  such  a 
judgment  cannot  be  granted  without  depart- 
ing from  the  rule  long  established  in  the 
jurisprudence  of  both  this  country  and  Eng- 
land, that  a  court  will  not  lend  its  aid  in 
any  way  to  a  party  seeking  to  realize  the 
fruits  of  an  agreement  that  appears  to  be 
tainted  with  illegality,  although  the  result 
of  applying  that  rule  may  sometimes  be  to 
shield  one  who  has  got  something  for  which, 
as  between  man  and  man,  he  ought  perhaps 
to  pay,  but  for  which  he  is  unwilling  to  pay." 


248    THE  CONTROL  OF  THE  MARKET 

In  the  Standard  Oil  case  of  this  year,  the 
Chief  Justice  in  his  opinion  has  made  it  plain 
that  the  Supreme  Court  believes  that  both  of 
the  principal  sections  of  the  Sherman  Act 
are  to  be  taken  together,  the  first  clause 
against  combination  and  the  second  clause 
against  monopolization.  The  second  section 
he  says  was  intended  to  supplement  the  first, 
and  to  make  sure  that  by  no  possible  guise 
could  the  public  policy  embodied  in  the  first 
section  be  evaded.  Having  in  the  first  sec- 
tion forbidden  all  means  of  restraining  trade, 
the  second  section,  according  to  the  Chief 
Justice,  seeks,  if  possible,  to  make  the  pro- 
hibition of  the  act  the  more  complete  by  em- 
bracing all  attempts  to  reach  monopoly,  even 
though  the  acts  by  which  such  results  are 
brought  about  be  not  embraced  within  the 
general  enumeration  of  the  first  section. 
"  And  it  is  worthy  of  observation,"  continues 
the  Chief  Justice,  "  that  although  the  statute 
by  the  comprehensiveness  of  the  enumerations 
embodied  in  both  the  first  and  second  sections 
makes  it  certain  that  its  purpose  was  to  pre- 
vent undue  restraints  of  every  kind  or  nature, 
nevertheless,  by  the  omission  of  any  direct 
prohibition  against  monopoly  in  the  concrete, 
it  indicates  consciousness  that  the  freedom  of 


PREDATORY  COMPETITION  249 

the  individual  right  to  contract,  when  not  un- 
duly or  improperly  exercised,  was  the  most 
efficient  means  for  the  prevention  of  mo- 
nopoly, since  the  operation  of  the  centrifugal 
and  centripetal  forces  resulting  from  the 
right  to  freely  contract  was  the  means  by 
which  monopoly  would  be  inevitably  pre- 
vented if  no  extraneous  or  sovereign  power 
imposed  it,  and  no  right  to  make  unlawful 
contracts  having  a  monopoUstic  tendency  were 
permitted." 

To  what  extent  this  regulation  by  law 
should  go  is  indicated  by  the  great  abuses  of 
their  powers  which  the  cases  which  have  been 
decided  have  disclosed.  It  is  plain  that  the 
law  is  primarily  directed  now  against  exclu- 
sive policies.  For  example  in  the  case  of 
Montague  &  Co.  v.  Lowry  (193  U.  S.  38), 
the  Supreme  Court  confirmed  a  judgment  for 
treble  damages  in  favor  of  a  dealer  in  tiles 
who  had  been  greatly  injured  in  his  business 
by  the  machinations  of  a  dealers'  association, 
membership  in  which  was  refused  him.  It 
appeared  that  this  dealers'  association  had 
adopted  the  policy  of  refusing  to  sell  to  any 
dealers  not  members  for  less  than  the  retail 


250    THE  CONTROL  OF  THE  MARKET 

price,  while  the  manufacturers  of  tiles  asso- 
ciated with  them  agreed  not  to  sell  to  persons 
not  members  at  any  price.  As  the  court 
pointed  out,  this  was  not  the  simple  case  of  a 
refusal  to  deal  with  a  customer,  it  was  the 
action  of  a  combination  bent  upon  perpetuat- 
ing its  monopoly  by  bringing  pressure  upon 
others  to  prevent  them  from  dealing  with  a 
rival  dealer.  The  object  of  what  was  done 
was  plainly  to  gain  monopoly  by  excluding 
others.  And  for  the  disastrous  effects  of 
this  policy  to  the  business  of  the  inde- 
pendent dealer  the  court  held  he  had  legal 
redress. 

In  the  Patent  Medicine  case,  recently  de- 
cided by  the  Supreme  Court  (2^0  U.  S.  373), 
this  point  is  even  more  strongly  made.  There 
was  shown  in  evidence  in  this  case  a  system 
of  contracts  between  manufacturers  of  patent 
medicines  and  wholesale  and  retail  dealers, 
by  which  the  manufacturers  planned  to  con- 
trol the  prices  at  which  the  medicines  should 
be  sold  at  wholesale  and  at  retail,  so  that  there 
would  be  no  possibility  of  price  cutting  at 
any  stage.  As  an  aid  to  the  maintenance  of 
the  prices  thus  fixed  the  company  devised  a 
system  of  tracing  and  identifying  through 
serial  numbers  each  wholesale  and  retail  pack- 


PREDATORY  COMPETITION  251 

age  of  its  products.  The  Supreme  Court, 
being  convinced  that  the  various  contracts 
were  all  parts  of  a  general  scheme  to  destroy 
competition,  held  that  the  contracts  were  void- 
able at  the  option  of  a  dealer  who  had  bought 
the  goods  with  the  agreement  to  maintain  the 
price  named.  Once  the  product  is  sold,  said 
the  court  succinctly,  the  public  is  entitled  to 
whatever  advantage  may  be  derived  from 
competition  in  the  subsequent  traffic. 


Two  cases  in  the  state  courts  of  late  will 
serve  to  bring  out  the  present  unfairness  in 
the  trust  competition  in  a  striking  way.  In 
Standard  Oil  Company  v.  Doyle  (118  Ky. 
622)  there  were  extraordinary  allegations  of 
unfair  competition  made  by  a  competitor  of 
the  Standard  Oil  Company  against  it.  He 
alleged  that,  after  he  had  successfully  estab- 
lished a  local  business,  a  special  representative 
of  the  company  was  sent  to  destroy  it.  A 
local  wagon  line  was  established;  and  the 
drivers  of  these  wagons  were  apparently  in- 
structed to  follow  the  wagons  of  the  inde- 
pendent concern,  the  drivers  of  the  Standard 
wagons  even  following  the  other  drivers  into 


262    THE  CONTROL  OF  THE  MARKET 

the  houses  and  stores  where  the  independent 
concern  was  seUing,  offering  to  sell  oil  and 
gasoline  at  reduced  rates  or  practically  for 
nothing.  Moreover,  threats  were  made 
against  customers  of  the  independent  concern 
that  they  would  be  put  out  of  business  if  they 
continued  to  deal  with  it;  and  various  other 
methods  were  employed  to  destroy  the  credit 
of  the  independent  concern  and  estrange  its 
customers.  In  holding  this  to  be  unfair  com- 
petition, Mr.  Justice  Nunn  said:  "  It  was 
most  assuredly  unlawful  to  obstruct,  harass, 
and  annoy  appellee's  employees  when  en- 
gaged in  the  discharge  of  their  duties  in  sell- 
ing and  distributing  oils  to  appellee's  cus- 
tomers; to  threaten  customers  of  appellee  to 
shut  them  up  in  their  business  if  they  con- 
tinued to  deal  in  appellee's  oils;  to  cause  and 
procure  false  and  injurious  reports  concern- 
ing appellee  and  his  business  to  be  circulated 
in  Lexington  and  vicinity;  and  to  procure 
appellee's  arrest  and  prosecution  on  false 
charges  in  connection  with  his  business  in  the 
sale  of  oils,  the  purpose  of  estranging  and 
alienating  the  acquaintances,  customers  and 
patrons  of  appellee."  There  is  too  much  on  the 
records  of  courts  against  the  Standard  Oil 
Company  to  let  one  believe  all  its  protesta- 


PREDATORY  COMPETITION  253 

tions    of    the    advantages    of    a    benevolent 
despotism. 

In  Cilley  v.  United  Shoe  Machinery  Com- 
pany (152  Fed.  726)  it  was  alleged  that  this 
corporation  was  monopolizing  the  shoe  ma- 
chinery business  of  the  United  States  by  com- 
pelling shoe  manufacturers  throughout  the 
United  States,  in  leasing  shoe  machinery  from 
it,  to  agree  to  use  no  other  shoe  machinery  in 
their  respective  factories  except  that  made  by 
it.  Cilley  further  alleged  that  he  was  the 
manufacturer  of  a  certain  machine  used  in 
making  shoes,  but  that  by  reason  of  these 
exclusive  contracts  manufacturers  throughout 
the  United  States  who  would  otherwise  have 
bought  from  him  were  prevented  from  doing 
so.  He  urged  that  he  had  been  thus  deprived 
of  the  open  market  to  which  he  was  entitled 
as  the  maker  of  a  meritorious  machine;  and 
he  asked  damages  for  this  loss  of  business 
and  depreciation  of  his  property.  The  Fed- 
eral Court  unfortunately  did  not  discuss  his 
complaint  on  its  merits.  It  was  thrown  out  of 
court  primarily  because  the  complaint  was 
not  sufficiently  definite.  That  this  controversy 
between  this  corporation  and  its  competitors 
is  settled,  no  one  really  believes  who  follows 
the  current  news. 


254    THE  CONTROL  OF  THE  MARKET 

VI 

It  is  sufficiently  plain  that  dealers  who  are 
damaged  in  their  business  by  the  exclusive,  or 
rather  excluding,  policies  of  the  trusts  may 
bring  action  against  these  combined  concerns 
for  the  recovery  of  such  damages  so  inflicted. 
One  of  the  most  striking  cases  of  this  under 
the  state  anti-trust  laws  is  Cleland  v.  An- 
derson, a  Nebraska  case  (66  Neb.  252).  It 
appeared  in  that  case  that  a  lumber  dealer 
had  been  driven  out  of  the  lumber  business 
by  force  of  threats  made  by  members  of  a 
lumber  dealers'  association  to  wholesale  lum- 
ber dealers,  of  whom  this  particular  dealer 
had  been  purchasing.  It  appeared  that  the 
principal  idea  in  maintaining  this  association 
was  to  prevent  the  members  of  the  association 
from  being  subjected  to  competition  from 
dealers  who  were  not  members.  And  it 
further  appeared  that  the  wholesale  dealers 
made  "  honorary  members  "  were  subjected  to 
fines  if  they  sold  to  retailers  not  "  regular." 
In  holding  that  the  attack  of  this  combination 
upon  the  dealer  constituted  a  legal  wrong 
for  which  recovery  could  be  had  under  the 
statute.  Pound,  Commissioner,  said:  "  Com- 
binations   and    conspiracies    in    restraint    of 


PREDATORY  COMPETITION  265 

trade  are  unlawful  and  actionable  at  common 
law,  and  it  has  been  held  that  combinations 
between  independent  dealers  which  have  the 
effect  of  preventing  competition  are  within 
that  rule  without  regard  to  what  may  be  done 
in  pursuance  of  them,  and  although  the  object 
is  merely  to  protect  against  ruinous  rivalry 
without  any  attempt  to  charge  undue  and  ex- 
cessive prices.  While  persons  have  a  right  to 
withdraw  their  trade  from  whom  and  as  they 
please,  they  have  no  right  to  unite  in  restraint 
of  competition;  and  when  they  go  beyond 
mere  withdrawal  of  business  and  employ 
coercion  or  intimidation  to  prevent  free  deal- 
ing a  different  question  is  presented." 

A  strong  opinion  to  the  same  effect  was 
recently  handed  down  in  Illinois:  Purington 
V.  Hinchliff  (219  111.  159).  In  this  case  a 
manufacturer  and  dealer  in  bricks  was  injured 
by  the  operation  of  an  agreement  between  a 
brick  manufacturers'  association,  a  builders* 
association  and  a  bricklayers'  union,  that  they 
would  not  use,  purchase,  or  lay  bricks  made 
by  any  concern  which  had  not  subscribed  to 
the  rules  of  the  builders'  association.  In  hold- 
ing this  to  be  an  unlawful  conspiracy  against 
this  manufacturer,  Mr.  Justice  Wilkin  said: 
"  No  person  or  combination  of  persons  can 


256    THE  CONTROL  OF  THE  MARKET 

legally,  by  direct  or  indirect  means,  obstruct 
or  interfere  with  another  in  the  conduct  of 
his  lawful  business,  and  any  loss  willfully 
caused  by  such  interference  will  give  the 
party  injured  a  right  of  action  for  all 
damages  sustained.  All  parties  to  a  con- 
spiracy to  ruin  the  business  of  another  be- 
cause of  his  refusal  to  do  some  act  against 
his  will  or  judgment  are  liable  for  all  overt 
acts  illegally  done  pursuant  to  such  conspiracy 
and  for  the  subsequent  loss,  whether  they  were 
active  participants  or  not." 


VII 

If  the  present  emphasis  upon  monopoliza- 
tion as  the  gist  of  the  wrong  continues,  the 
law  will  very  probably,  in  distinguishing  be- 
tween what  is  unreasonable  and  what  is  reason- 
able, take  the  distinction  which  has  been  es- 
tablished in  Rhode  Island.  In  that  state  the 
whole  law  turns  upon  whether  monopolization 
is  shown  or  not.  This  court  said  recently  in 
the  Coal  Case  (29  R.  I.  254)  :  "  Although  the 
list  of  common-law  offenses  in  this  State  may 
be  said  to  include  that  of  engrossing,  our  his- 
tory does  not  disclose  any  prosecutions  made 
thereunder;  it  may  therefore  be  considered  as 


PREDATORY  COMPETITION  257 

dormant,  but  ready  to  be  called  into  activity 
whenever  the  occasion  may  require.  When  it 
becomes  necessary,  the  law  relative  to  engross- 
ing in  this  state  will  be  applied,  with  due 
regard  to  the  circumstances  and  conditions 
existing  at  the  time  of  its  enforcement.  The 
danger  to  be  apprehended  from  engrossing 
is  monopoly.  A  monopoly,  as  now  under- 
stood, "  embraces  any  combination  the  tend- 
ency of  which  is  to  prevent  competition  in 
its  broad  and  general  sense  and  to  control 
prices  to  the  detriment  of  the  public." 

But  the  court  approved  the  language  of  an 
earlier  case  (18  R.  I.  484)  where  it  was  in- 
sisted that  monopolization  must  be  shown: 
"  Undoubtedly  there  may  be  combinations  so 
destructive  of  the  right  of  the  people  to  buy 
and  sell  and  to  pursue  their  business  freely 
that  they  must  be  declared  to  be  void  upon 
the  ground  of  public  policy.  In  such  cases 
the  injury  to  the  public  is  the  controlling  con- 
sideration. But  it  does  not  follow  that  every 
combination  in  trade,  even  though  such  com- 
bination may  have  the  effect  to  diminish  the 
number  of  competitors  in  business,  is  there- 
fore illegal.  Such  a  rule  would  produce 
greater  public  injury  than  that  which  it 
would  seek  to  cure.     It  would  be  imprac- 


258    THE  CONTROL  OF  THE  MARKET 

ticable.  It  would  forbid  partnerships  and 
sales  by  those  engaged  in  a  common  business. 
It  would  cut  off  consolidations  to  secure  the 
advantages  of  united  capital  and  economy  of 
administration.  It  would  prevent  all  restric- 
tions and  exclusive  privileges,  and  hamper  the 
familiar  conduct  of  commerce  in  many  ways. 
There  may  be  many  such  arrangements  which 
will  be  beneficial  to  the  parties  and  not  in- 
jurious to  the  public.  Monopolies  are  liable 
to  be  oppressive,  and  hence  are  deemed  to  be 
hostile  to  the  public  good.  But  combinations 
for  mutual  advantage  which  do  not  amount 
to  a  monopoly,  but  leave  the  field  of  com- 
petition open  to  others,  are  neither  within  the 
reason  nor  the  operation  of  the  rule." 


vin 

Despite  the  protests  of  the  managers  of  the 
trusts,  that  prices  have  been  lowered  under 
their  auspices,  there  is  a  growing  suspicion 
of  overcharging.  At  all  events  it  would  be 
comforting  to  believe  that  the  law  could  reach 
outrageous  cases  of  overcharging.  On  this 
point  there  is  a  significance  in  the  decision 
of  the  United  States  Supreme  Court  in 
Chattanooga  Foundry  Co.  v.  Atlanta    (203 


PREDATORY  COMPETITION  259 

U.  S.  390)  which  has  not  generally  been  ap- 
preciated. In  that  case  it  was  held  that  the 
city  could  recover  from  the  foundry  the 
amount  it  was  compelled  to  pay  the  foundry 
for  iron  pipe  above  what  it  was  worth.  The 
purchase  was  made,  after  a  simulated  com- 
petition, at  a  price  fixed  by  the  trust  of  which 
the  foundry  was  member.  It  was  held  that 
the  loss  to  the  city  was  within  the  Sherman 
Anti-Trust  Law.  Said  Mr.  Justice  Holmes, 
"  A  person  whose  property  is  diminished  by 
a  payment  of  money  wrongfully  induced  is 
injured  in  his  property."  It  is  good  to  see 
that  the  Supreme  Court  appreciates  that  over- 
charging by  a  monopoly  works  a  definite 
legal  wrong  for  which  redress  may  be  had. 

Discrimination  in  price  may  also  come 
within  the  ban  of  the  law  where  that  dis- 
crimination is  put  in  force  as  part  of  a 
scheme  to  monopolize,  as  has  been  seen  in 
many  cases  already.  One  more  may  be  added^ 
Aikens  v.  Wisconsin  (195  U.  S.  194).  In 
this  case  the  extraordinary  facts  appeared 
that  a  combination  of  newspapers,  to  prevent 
a  rival  paper  from  raising  its  rates,  announced 
that  they  would  charge  similarly  advanced 
rates  to  merchants  who  paid  these  advanced 
rates,  while  continuing  to  charge  its  adver- 


260    THE  CONTROL  OF  THE  MARKET 

tisers  generally  their  regular  rates.  Proceed- 
ings were  brought  against  the  combination 
under  the  Wisconsin  statute  for  criminal  con- 
spiracy. In  point  of  constitutionality  the  case 
was  taken  to  the  Supreme  Court  of  the 
United  States,  where  the  conviction  was  sup- 
ported. Said  Mr.  Justice  Holmes:  "  It  would 
be  impossible  to  hold  that  the  liberty  to  com- 
bine to  inflict  mischief  is  among  the  rights 
which  the  Fourteenth  Amendment  was  in- 
tended to  preserve."  With  these  two  cases 
in  mind  one  can  assert  confidently  that  legis- 
lation providing  further  remedies  for  over- 
charging and  discrimination  by  the  trusts 
would  be  held  constitutional. 


IX 

Regulation — not  destruction — will  soon  be 
shown  to  be  the  policy  of  the  twentieth  cen- 
tury. No  enlightened  person  could  wish  to 
see  the  industrial  progress  which  these  great 
combinations  have  fostered  set  back.  Rather 
upon  economic  grounds  these  efficient  organi- 
zations should  be  turned  to  the  common  good. 
From  this  point  of  view  these  continual  at- 
tacks by  which  the  dissolution  of  particular 
trusts    is    successively    attempted,    have    no 


PREDATORY  COMPETITION  261 

policy  behind  them  that  will  eventually  be 
justified,  aside  from  that  of  driving  the  trusts 
into  organizing  in  the  final  form  of  a  single 
corporation.  Perhaps  for  the  present,  when 
the  proper  method  of  legal  regulation  has 
not  been  worked  out,  it  is  necessary  to  visit 
this  punishment  upon  those  trusts  which  out- 
rage public  opinion.  But  very  soon  the  time 
will  come  when  the  principal  trusts  will  have 
fully  reorganized  as  single  corporations.  And 
then  the  fundamental  problem  of  legal  regu- 
lation must  be  squarely  faced.  Laissez  faire 
has  unquestionably  permitted  great  abuses  by 
these  industrial  combinations  which  it  encour- 
aged. State  control  is  therefore  now  indis- 
putably necessary,  however  much  it  may  be 
opposed  by  those  who  had  their  ideas  fixed 
under  the  older  regime. 

What  has  been  attempted  in  this  book  is 
to  follow  the  course  of  the  development  of 
the  policy  of  the  law  from  the  recent  past 
into  the  near  future.  There  are  those  who 
believe  that  the  solution  will  come,  not  by  such 
development  in  the  common  law,  but  by  new 
legislation  of  a  different  sort.  But  let  them 
remember  that  legislation  which  is  out  of 
touch  with  the  existing  law  usually  comes  to 
naught.     It  is  not  impossible  for  the  Legis- 


262    THE  CONTROL  OF  THE  MARKET 

lature  to  make  legal  that  which  has  always 
been  held  by  men  of  om*  race  in  modern 
times  to  be  illegal,  an  unreasonable  combina- 
tion in  restraint  of  trade — but  it  is  improb- 
able. It  is  not  impossible  that  the  Executive 
may  be  given  a  power  to  dispense  with  law 
in  favor  of  good  trusts — but  it  is  almost  un- 
thinkable. This  dispensing  power  to  those 
who  are  good,  as  a  rebuke  to  those  who  are 
thought  to  be  bad,  is  not,  to  a  lawyer,  a 
practicable  substitute  for  general  regulation 
of  all  trusts,  good  and  bad.  Under  proper 
regulation  the  trusts  which  are  found  to  be 
acting  reasonably  will  not  be  disturbed,  while 
those  which  are  acting  unreasonably  will  be 
summarily  dealt  with.  If  the  common  law 
is  as  well  developed  as  the  writer  believes, 
no  new  substantive  law  is  needed.  But  Con- 
gress may  well  provide  better  methods  for  its 
enforcement,  such  as  the  Interstate  Trade 
Commission  which  has  been  proposed  recently. 
Let  it  not  be  said  that  the  administration 
has  too  great  powers,  which  it  is  likely  to 
abuse.  There  is  proof  enough  that  it  is  a 
workable  programme  in  the  fact  that  the 
successive  administrations,  with  full  authority 
from  the  Supreme  Court  in  that  early  dic- 
tum to  cause  punishment  to  be  imposed  upon 


PREDATORY  COMPETITION 

almost  any  large  corporation  in  the  land,  have 
never  invoked  the  statute  against  any  com- 
bination which  was  not  beyond  question  an 
illegal  combination  by  the  common  law  dis- 
tinction which  the  court  has  now  adopted. 
The  time  has  come  for  the  recognition  of  the 
permanence  of  these  great  aggregations  of 
capital  as  such.  It  would  be  a  grave  mis- 
take, from  an  economic  point  of  view,  to 
force  the  dissolution  of  the  corporate 
organizations  which,  without  abusing  their 
power,  now  control  many  industries.  It  may 
even  be  hoped  that  the  time  will  soon  come 
when  it  may  be  seen  that  these  effective 
concerns  may  work  for  the  common  good. 
It  is  high  time  that  the  old  policy  directed  to 
the  impossible  end  of  destroying  the  trust 
should  make  way  for  the  new  idea  to  regu- 
late the  business  conduct  of  these  great  in- 
dustries. Regulation — not  destruction — 
should  be  the  programme  of  the  future. 

It  has  indeed  been  a  long  campaign  which 
the  law  has  been  waging  against  the  trusts. 
And  it  has  been  conducted  with  varying  for- 
tunes. It  is  a  matter  of  flow  and  flux,  as  is 
the  nature  of  progress.  We  think  we  know 
the  limits  of  the  application  of  the  law  to-day 
in  reading  this  latest  decision.     But,  if  the 


264    THE  CONTROL  OF  THE  MARKET 

history  of  this  matter  is  to  teach  us  anything, 
it  is  that  one  never  can  be  sure  of  the  future. 
However,  all  that  enterprising  men  want  is 
reasonable  certainty  to  go  ahead  on;  and  this 
they  have  in  the  decisions  of  this  year.  He 
who  is  not  willing  to  risk  his  fortunes  upon 
fair  probabilities  has  no  place  in  the  higher 
realms  of  American  business.  Peace  we  may 
have  for  a  time  with  these  latest  decisions  in 
evidence.  But  it  is  an  armed  peace  without 
immediate  prospect  of  final  disarmament. 
For  this  present  century  at  least  there  can 
be  no  long  respite  from  social  warfare, 
helium  omnium  contra  omnes. 


It  is  very  likely  that  the  problems  which 
have  been  discussed  in  this  chapter  will  receive 
greater  attention  in  the  immediate  future  than 
they  have  hitherto.  Unquestionably  we  are 
going  to  have  law  enough  to  redress  the  wrongs 
done  others  in  business  by  the  monopolistic 
concerns.  It  should  be  the  abuse — not  the 
possession — of  monopoly  which  will  subject  a 
concern  to  prosecution  under  the  law  in  the 
future.  The  essence  of  the  wrong  of  mo- 
nopolization is  the  exclusion  of  others  from 
the  market,  not  mere  growth  of  the  concern 


PREDATORY  COMPETITION  265 

itself.  In  other  words,  it  is  unnatural  growth 
by  unreasonable  tactics  which  will  be  pun- 
ished, not  natural  growth  by  deserved  success. 
Monopolization  by  exclusive  policies  and  un- 
justifiable discriminations  is  the  thing  to  be 
prevented.  With  an  open  market  a  rival  con- 
cern may  succeed  on  its  merits,  but  not  if  the 
trusts  are  allowed  to  control  the  market.  If 
this  opportunity  is  preserved,  there  will  be  al- 
most protection  enough  against  any  injury  to 
the  public,  if  not  by  competition  itself,  by  the 
potentiality  of  competition.  If  unfair  com- 
petition is  forbidden,  fair  competition  will  al- 
ways be  possible.  The  market  should  be  so 
free  from  unnatural  restraints  that  by  natural 
competition  one  may  always  succeed. 


NOTE 

For  other  examples  of  suits  brought  under  the  Fed- 
eral anti-trust  statutes  by  a  competitor  injured  by  the 
force  of  the  monopoly,  see — Rice  v.  Standard  Oil  Co., 
134  Fed.  464  (1905);  Loder  v.  Jayne,  142  Fed.  1010 
(1906). 

The  decisions  under  the  State  anti-trust  laws  are  to 
the  same  effect,  see — Finck  v.  Schneider  Granite  Co., 
187  Mo.  244  (1904);  Straus  v.  Am.  Publishers'  Ass'n, 
177  N.  Y.  473  (1904). 


867 


CHAPTER  XII 

EXTENT  OF   STATE  CONTROL 


All  businesses  affected  with  a  public  inter- 
est are  subject  to  State  control  in  a  peculiar 
degree.  Whether  a  business  is  public  or  not 
depends  in  last  analysis  upon  the  situation 
of  the  public  with  respect  to  it.  Are  there 
enough  of  such  purveyors  to  serve  the  pub- 
lic? or  are  there,  for  permanent  reasons,  never 
enough?  If  so,  there  will  be  virtual  competi- 
tion; if  not,  there  will  be  virtual  monopoly. 
It  will  be  found  that  in  many  of  the  great 
businesses  such  competition,  although  from  a 
legal  point  of  view  possible,  is  from  the 
economic  point  of  view  improbable.  So  far 
as  one  can  see,  virtual  competition  is  at  an 
end  in  these  industries,  and  virtual  monopoly 
will  henceforth  prevail.  Therefore  it  must  be 
said  that  the  public  has  now  an  interest  in  the 
conduct  of  these  businesses  by  their  owners. 
They  are  affected  with  a  public  interest,  since 

268 


EXTENT  OF  STATE  CONTROL       269 

these  agencies  are  carried  on  in  a  manner  to 
make  them  of  public  consequence.  Having 
devoted  their  property  to  a  use  in  which  the 
public  has  an  interest,  they  in  effect  have 
granted  to  the  public  an  interest  in  that  use, 
and  must  submit  to  be  controlled  by  the  pub- 
lic for  the  conmion  good  to  the  extent  of 
the  interest  they  have  created.  Plainly  we 
have  in  the  accepted  use  of  these  phrases  the 
manifestation  of  a  deep-seated  change  in 
habits  of  thought.  Only  twenty-five  years 
ago  the  general  feeling  as  to  every  sort  of 
industrial  relation  was  that  it  was  better  to 
leave  all  alone,  that  it  was  better  to  leave 
people  to  work  out  their  own  salvation.  But 
of  late  years  we  have  been  calling  upon  the 
State  to  save  us  from  monopoly  in  all  its 
forms;  and  we  are  impatient  if  it  delays. 


In  recent  times  there  undoubtedly  is  an 
increasing  need  of  this  stricter  regulation  of 
all  employments  which  appear  to  be  aflPected 
with  a  public  interest.  The  most  of  men 
appreciate  that  the  law  has  already  taken  con- 
trol of  the  situation  for  all  time.  It  is  hardly 
too  much  to  say  that  the  efficient  regulation 


270    THE  CONTROL  OF  THE  MARKET 

of  the  monopolistic  concerns  by  sufficient  law 
is  the  most  pressing  problem  confronting  this 
nation.  Great  power  brings  as  its  conse- 
quence the  need  of  control  of  that  power  for 
the  good  of  the  whole  people.  It  is  urged 
that  the  time  has  come  when  extension  of  the 
law  and  enforcement  of  it  should  be  the 
avowed  attitude  of  all  conservative  persons 
who  wish  the  perpetuation  of  present  condi- 
tions. 

It  would  be  well  if  the  restless  and  the 
doubting  who  see  many  abuses  and  many 
wrongs  in  the  conduct  of  the  great  monopolies 
without  prompt  remedy  or  adequate  redress, 
might  be  relieved  and  heartened  by  being 
shown  that  the  common  law  is  adequate  to 
deal  with  all  real  industrial  wrongs,  and  that 
with  the  aid  of  remedial  statutes  the  adminis- 
tration of  the  law  can  be  relied  upon.  The 
proprietors  of  these  great  businesses  should 
be  told  sharply  that  they  may  not  adopt  to 
the  prejudice  of  their  public  various  profitable 
policies,  and  then  justify  them  as  inherent 
rights  which  other  men  in  ordinary  business 
may  use  in  the  advancement  of  their  interests. 

All  businesses  both  great  and  small  are  sub- 
ject, to  be  sure,  to  that  general  police  power 
of  the  State  whereby  in  any  civilized  society 


EXTENT  OF  STATE  CONTROL       271 

the  effort  is  made  to  so  order  things  that  one 
may  not  use  his  own  so  as  to  injure  another. 
But  the  comparison  of  the  large  amount  of 
regulation  which  it  is  considered  proper  for 
the  State  to  impose  upon  a  monopolized 
business  with  the  small  amount  of  regulation 
which  it  is  considered  proper  for  the  State  to 
enforce  in  regard  to  competitive  business  is 
in  itself  significant  enough.  The  difference 
which  is  shown  is  more  than  one  of  degree;  it 
becomes  one  in  kind.  In  the  ordinary  business 
where  regulation  by  competition  is  still  suffi- 
cient, the  law  cannot  question  the  decision 
of  the  proprietor  to  refuse  to  sell  to  a  par- 
ticular applicant,  or  to  discriminate  in  his 
prices.  But  where  the  business  is  in  the  hands 
of  a  monopolistic  combination,  refusal  to  sell 
may  become  conspiracy,  and  discrimination 
may  be  held  illegal. 

m 

There  is  now  fortunately  almost  general 
assent  to  State  control  of  the  established  mo- 
nopolies. Two  ways  only  can  be  found  to 
exercise  such  control.  One  way  is  govern- 
ment ownership.  The  other  way  is  the  con- 
trol of  their  practices.  One  or  the  other  of 
these  methods  must  be  finally  adopted.    The 


272    THE  CONTROL  OF  THE  MARKET 

conservative  method  is  now  on  trial.  It  be- 
hooves us  to  see  to  it  that  it  be  so  intelli- 
gently tried,  and  that  the  law  applicable  to 
the  case  be  so  accurately  enforced,  that  we 
may  not  be  driven  perforce  to  the  radical 
alternative  of  public  ownership.  If  govern- 
ment ownership  should  be  made  necessary  by 
the  failure  of  State  regulation,  we  should  be 
face  to  face  with  socialism.  For  that  a  people 
once  accustomed  to  seeing  all  great  business 
operated  by  the  government  would  be  stopped 
by  any  legal  distinction  between  them  and 
ordinary  concerns,  is  too  much  to  hope. 

This  principle  of  State  control  does  not 
lead  one  to  socialism;  indeed,  it  saves  one 
from  socialism  if  truly  understood.  It  is  only 
in  those  few  businesses  where  the  conditions 
are  monopolistic  that  dangerous  power  over 
their  public  has  been  attained  by  those  who 
have  the  control.  In  most  businesses  the 
virtual  competition  which  prevails  puts  the 
distributors  at  the  mercy  of  their  public.  In 
current  opinion  the  recognition  of  this  dis- 
tinction is  manifest.  Men  are  as  eager  for  an 
open  market  as  ever;  but  they  wish  the  control 
of  monopoly  to  insure  it.  The  demand  is  for 
freer  trade  where  competition  prevails  and 
stricter  regulations  where  monopoly  is  found. 


EXTENT  OF  STATE  CONTROL       273 

So  long  as  virtual  competition  prevails  there  is 
no  necessity  for  coercive  law,  since  there  is 
then  no  power  over  the  purchasing  public. 
But  where  in  any  business  virtual  monopoly 
is  permanently  established  the  people  will  not 
be  denied  in  their  deliberate  policy  of  effectual 
regulation  of  such  public  service  for  the 
common  good. 

Only  to  this  extent  the  individualistic  ideal 
of  society  gives  place  to  the  collective  policy. 
It  is  with  true  appreciation  of  the  real  issue 
that  we  are  contending  for  State  control  to 
gain  individual  liberty.  It  may  once  have 
been  the  ideal  of  industrial  freedom  that  a 
man  might  do  as  he  pleased  with  his  own;  in 
any  event  that  is  no  longer  our  notion  of 
social  justice.  It  is  believed  now  that  with 
increase  in  power  over  the  particular  market 
comes  increase  in  responsibility  to  the  depend- 
ent public.  Socialism  would  destroy  all 
private  interests  in  the  name  of  the  public; 
regulation  would  preserve  private  interests  by 
reconciling  them  with  public  right.  Socialism 
attacks  all  capital  to  whatever  business  it  is 
devoted;  regulation  grapples  monopoly  only 
when  it  is  convinced  that  there  is  no 
other  way  to  safeguard  the  interests  of  the 
public. 


274.    THE  CONTROL  OF  THE  MARKET 

IV 

It  seems  to  the  writer  that  these  occasional 
decisions,  in  recent  years,  by  which  the  dis- 
solution of  some  one  great  corporation  is  at- 
tempted in  turn,  are  as  futile  as  the  anarchist's 
bomb,  and  that  the  programme  of  destruction 
of  these  established  monopolies  is  as  unin- 
telligent as  the  terrorist  propaganda.  No 
thinking  person,  for  example,  would  wish  to 
see  the  American  steel  industry  revert  to  scat- 
tered forges.  This  is  especially  true,  as  it  is 
quite  probable  that  what  evils  there  may  be 
in  the  conduct  of  the  present  company  could 
be  met  by  effective  regulation  of  its  dealings 
of  the  sort  to  which  monopolies  have  been 
subjected  from  time  immemorial.  No  one 
proposes  to  abolish  gas  companies  because 
they  usually  have  a  monopoly;  but  everyone 
agrees  that  such  companies  should  be  com- 
pelled to  serve  all  that  apply  with  adequate 
facilities  for  reasonable  compensation  and 
without  discrimination.  And  this  law  is  al- 
ways ready  to  include  new  businesses  within 
its  scope,  as  it  did  unhesitatingly  in  the  case 
of  the  electric  companies,  for  example. 

It  is  not  pretended  that  all  that  is  urged  in 
this  book  should  be  taken  as  established  in 


EXTENT  OF  STATE  CONTROL       275 

the  present  law.  It  is  put  forth  seriously  by 
one  somewhat  versed  in  the  whole  subject 
as  a  working  hypothesis,  that  the  solution  of 
the  trust  problem  may  be  found  in  the  law 
governing  the  public  callings.  It  is  contended 
that  the  operations  of  the  greatest  of  these 
trusts  have  become  of  such  public  conse- 
quence as  to  affect  them  with  a  public  interest 
within  the  meaning  of  the  law.  Moreover, 
these  trusts  have,  in  their  control  of  their  re- 
spective markets,  an  assured  permanence  from 
the  conditions  prevailing,  so  that  they  are  not 
to  be  dispersed  as  those  trade  combinations 
which  are  aiming  at  temporary  cornering  of 
the  market  may  be.  These  great  industrial 
organizations  should  not  be  swept  away  by 
dissolution  of  these  new  corporations.  It  is 
rather  to  be  desired  upon  social  grounds  that 
these  effective  producers  in  their  special  fields 
should  be  turned  to  the  common  advantage. 
A  sufficient  regulation  to  secure  this  general 
good,  it  is  submitted,  is  to  be  found  in  the 
law  governing  public  employment,  which  re- 
quires, with  elaborate  detail  for  the  enforce- 
ment of  the  general  principles,  that  those  who 
conduct  a  business  in  which  the  public  has  an 
interest  serve  without  discrimination  and  for 
reasonable  compensation.    If  this  law  of  pub- 


276    THE  CONTROL  OF  THE  MARKET 

lie  employment  could  be  enforced  against 
the  industrial  trusts,  a  solution,  it  may  be 
hoped,  would  be  found  for  the  trust  problem; 
for  it  would  reach  the  two  complaints  most 
seriously  made  against  the  trusts — their 
predatory  competition  and  their  excessive 
capitalization. 

The  impartial  enforcement  of  this  pro- 
gramme ought  to  accommodate  all  the  con- 
flicting interests  involved  in  this  issue.  The 
legality  of  these  corporations  in  point  of  or- 
ganization being  fully  recognized,  the  present 
danger  from  a  sudden  attack  by  legal  proceed- 
ings which  may  eventuate  in  the  dissolution  of 
the  corporation  would  no  longer  exist.  On  the 
other  hand,  with  the  prohibition  of  discrimina- 
tory prices  effectively  enforced  by  the  admin- 
istration, enough  competition  would  be  pre- 
served to  modify  the  monopoly  so  that  the 
right  of  the  State  to  regulate  prices  need 
seldom  be  resorted  to.  This  solution  would 
result  in  an  industrial  peace,  with  the  con- 
tinual attacks  upon  the  monopolistic  cor- 
porations generally  abandoned  and  the 
right  of  the  public,  for  example,  to 
prevent  the  unfair  tactics  of  that  cor- 
poration fully  recognized.  Regulation  even 
to    this    extent    is    already    sufficiently  sue- 


EXTENT  OF  STATE  CONTROL       277 

cessful  in  dealing  with  those  corporations 
now  held  to  be  in  public  service  by  reason  of 
their  virtual  monopoly,  while  under  modern 
conditions  the  attempt  at  permanent  sup- 
pression of  industrial  concentration  in  cer- 
tain businesses  is  really  hopeless.  The  pres- 
ent policy  of  destruction  should  be  abandoned 
in  favor  of  the  programme  of  regulation. 
The  law  for  regulating  the  trusts  is  already 
developed,  if  only  we  have  the  insight  to 
reahze  it. 


THE   END 


TABLE  OF  CASES  DISCUSSED 


AIKENS  V.  WISCONSIN,  259 

ALLEN  V.  FLOOD,  15,  53,  68 

ARNOT  V.  PITTS1X)N  &  ELMIRA  COAL  CO.,  135 

AVERRILL  V.  SOUTHERN  RY.,  22 

AYER  V.  RUSHTON,  17 

B 

BAILEY  V.  FAYETTE  GAS-FUEL  CO.,  201 
BAILEY  V.  MASTER  PLUMBERS'  ASSOC,  104 
BARR  V.  ESSEX  TRADES  COUNCIL,  69 
BENNEIT  V.   DUTTON,  193 

BOHN  MANUFACTURING  CO.  v.  HOLLIS,  107 
BREWSTER  v.  MILLER'S  SONS  CO.,  108 
BROWN  &  ALLEN  v.  JACOBS  PHARMACY  CO.,  97 
BRYMER  V.  BUTLER  WATER  CO.,  203 


CHAMBERS  &  MARSHALL  v.  BALDWIN,  40 

CHAPIN  V.  BROWN  BROS.,  128 

CHATTANOOGA  FOUNDRY  CO.  v.  ATLANTA,  258 

CHICAGO  &  A.  R.  R.  v.  SUFFERN,  192 

CILLEY  V.  UNITED  SHOE  MACH.  CO.,  253 

CLARK  V.  FRANK,  136 

CLARK  V.  NEEDHAM,  156 

CLAYGATE  v.  BATCH  ELOR,  121 

CLEMMITT  V.  WATSON,  81 

CLELAND  V.  ANDERSON,  254 

COLLINS  V.  LOCKE,  132 

COMMONWEALTH   v.  STRAUSS,  245 

CONTINENTAL  WALLPAPER  CO.  v.  VOIGHT,  246 

CROFT  V.  DAY,  41 

CRUMP  V.  COMMONWEALTH,  65 

CUMMINGS  V.  HYATT,  174 

CUMMINGS  V.  UNION  BLUESTONE  CO.,  155 

CURRAN  V.  GALEN,  75 

279 


280       TABLE  OF  CASES  DISCUSSED 

D 
DAVEY  V.  DAVEY,  44 
DAVIS  V.  THE  PUBLISHING  CO.,  Ill 
DEBS,  IN  BE,  221 
DELZ  V.  WINFREE,  103 

DISTILLING  &  CAITLE  FEEDING  CO.  v.  PEOPLE,  163 
DOREMUS  V.  HENNESSY,  91 

E 
EMERY  V.  CANDLE  CO.,  146 
ERDMAN  V.  MITCHELL,  72 

G 
GLAMORGAN  COAL  CO.  v.  MINERS'  FEDERATION,  38 
GRAHAM  V.  ST.  CHARLES  ST.  RY.,  27 

H 

HARRIMAN  v.  NORTHERN  SECURITIES  CO.,  229 
HAUGEN  V.  ALBINA  WATER  CO.,  173 
HAYS  V.  PENNSYLVANIA  R.  R.  CO.,  197 
HOOVER  V.   PENNSYLVANIA   R.   R.,  200 
HOPKINS  V.  GREAT  NORTHERN  RY.,  18 
HOUCK  &  CO.  V.  WRIGHT,  137 
HUBBUCK  V.  WILKINSON,  48 
HUNDLEY  V.  LOUISVILLE  &  N.  R.  R.,  90 

I 
ILLINOIS  &  M.  CANAL  v.  CHICAGO  &  R.  I.  R.  R.,  20 
INDIA  BAGGING  ASSOC,  v.  KOCK,  126 
INTERSTATE  COMM.  v.  CHICAGO  GT.  W.  RY.,  208 
INTERSTATE  COMM  v.  DELAWARE,  L.  &  W.  RY.,  209 
INTERSTATE  COMM.  v.  LOUISVILLE  &  N.  RY.,  209 

J 
JACKSON  V.  STANFELD,  96 
JELLIET  V.  BROADE,  119 

JERSEY  CITY  PRINTING  CO.  v.  CASSIDY,  54 
JOHN  D.  PARK  CO.  v.  NAT'L  DRUGGISTS'  ASSOC,  95 

K 
KEEBLE  V.  HICKERINGILL,  49 

L 
LOEWE  V.  LAWLOR,  222 

LONDON  GUARANTY  &  A.  CO.  v.  HORN,  29 
LUCKE  V.  CLOTHING  ASSEMBLY,  71 
LUMLEY  V.  GYE,  37 


TABLE  OF  CASES  DISCUSSED       281 


M 

MacCAULEY  v.  TIERNEY,  100 

MALLORY  V.  HANAUR  OIL  WORKS,  145 

MARTELL  v.  WHITE,   109 

MENACHO  V.  WARD,  193 

MILBANK  V.  NEW  YORK,  L.  E.  &  W,  R.  R.,  158 

MILWAUKEE  ASSOC,  v.  NIEZEROWSKI,  129 

MITCHELL  V.  REYNOLDS,  134 

MOGUL  STEAMSHIP  CO.  v.  McGREGOR,  21,  93 

MONOPOLIES,  CASE  OF,  122 

MONTAGUE  &  CO.,  v.  LOWRY,  249 

MUNN  V.  ILLINOIS,  182 

MYLES  MEDICINE  CO.  v.  SIMMONS  CO.,  247 

N 

NATIONAL   PROTECTIVE   ASSOC,   v.   CUMMINGS,   79 
NESTER  V.  CONTINENTAL  BREWING  CO.,  147 
NICHOL  V.  MARTYN,  41 
NORTHERN  SECURITIES  CO.  v.  UNITED  STATES,  229 

O 

OAKDALE  MFG.  CO.  v.  GARST,  257 

OLD  DOMINION  STEAMSHIP  CO.  v.  McKENNA,  62 


PACIFIC  FACTOR  CO.  v.   ADLER,  124 

PASSAIC   PRINT  WORKS  v.   ELY  &  WALKER   CO.,  24 

PEOPLE  V.  CHICAGO  GAS  TRUST  CO.,  159 

PEOPLE  V.  DUKE,  243 

PEOPLE  V.  NORTH  RIVER  SUGAR  REFINING  CO.,  149 

PICKETT  V.  WALSH,  82 

PIERCE  V.  STABLEMEN'S  UNION,  84 

PLANT  V.  WOODS,  76 

PRIOR  OF  NEDEPORTS  CASE,  13 

PURINGTON   V.  HINCHLIFF,  255 

Q 
QUINN  V.  LEATHEM,  67 

R 

RATCLIFF  V.   WICHITA  STOCKYARDS,   183 
REINECKE  COAL  MINING  CO.  v.  WOOD,  51 
REX  V.  JOURNEYMEN  TAILORS,  60 
ROBINSON  V.  TEXAS  LAND  ASSOC,  28 


282        TABLE  OF  CASES  DISCUSSED 


SCHOOLMASTERS'    CASE,    13 

SCOTTISH  SOCIETY  v.  GLASGOW  ASSOC,  101 

SHEPARD  V.  MILWAUKEE  GAS  LIGHT  CO.,  176 

SILKMAN  v.  water  COMMISSIONERS,  198 

SMYTH  V.  AMES,  205 

SNELL  V.  CLINTON  ELECTRIC  CO.,  177 

SNOWDEN  V.  NOAH,   17 

STANDARD  OIL  CO.  v.  DOYLE,  251 

STANDARD  OIL  CO.  v.  UNITED  STATES,  234 

STATE  V.  ASSOCIATED  PRESS,  180 

STATE  V.  CITIZENS'  TELEPHONE  CO.,  194 

STATE  V.  NEBRASKA  TELEPHONE  CO.,  179 

STATE  V.  RHODE  ISLAND  COAL  CO.,  256 

STATE  V.  STANDARD  OIL  CO.,  151 

STOVALL  V.  McCUTCHEON,  131 


TIFT  V.  SOUTHERN  RY.,  208 
TRENTON  POTTERIES  CO.  v.  OLIPHANT,  160 
TUSCALOOSA   ICE   CO.  v.  WILLIAMS,  127 
TUTTLE  V.  BUCK,  25 

U 

UNITED  STATES  v.  ADDYSTONE  PIPE  CO.,  225 

UNITED  STATES  v.  AMERICAN  TOBACCO  CO.,  233 

UNITED  STATES  v.  ANDERSON,  220 

UNITED  STATES  v.  HOPKINS,  220 

UNITED  STATES  v.  JOINT  TRAFFIC  ASSOC.,  294 

UNIl'ED  STATES  v.  E.  C.  KNIGHT  CO.,  219 

UNITED  STATES  v.  SWIFT   &  CO.,  227 

UNITED  STATES  v.  TRANS-MISSOURI   ASSOC,  223 

V 

VEGELAHN  v.  GUNTNER,  16 

W 

WALSH  V.  DWIGHT,  31 

WALTHAM  WATCH  CO  v.  U.  S.  WATCH  CO.,  42 

WESTERN  COUNTIES  CO.  v.  LA  WES  CO.,  45 

WHITE  V.  MELLIN,  46 

WHITTENTON  MILLS  v.  UPTON,  144 

WRIGHT  V.  CUDAHY,  125 


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